Most people don’t appreciate the full importance of a will, especially if they think their estate is too small to justify the time and expense of preparing one. And even people who recognize the need for a will often don’t have one, perhaps due to procrastination or a disinclination to broach this sensitive subject with loved ones.
The truth is, nearly everyone should have a will. Here’s why.
Who Are Beneficiaries
Intestate succession laws of the state in which you live determine how your property will be distributed if you die without a valid will. For example, in most states the property of a married person with children who dies intestate (i.e., without a will) generally will be distributed one-third to the spouse and two-thirds to the children, while the property of an unmarried, childless person who dies intestate generally will be distributed to his or her parents (or siblings, if the parents are deceased).
These distributions may be contrary to what you want. In effect, by not having a will, you are allowing the state to choose your beneficiaries. Further, a will allows you to specify not only who will receive the property, but how much each beneficiary will receive.
Note: If you wish to leave property to a charity, a will may be needed to accomplish this goal.
Many people feel they do not need a will because their taxable estate does not exceed the amount allowed to pass free of federal estate tax. These assumptions, however, should be reviewed given the current state of change in the federal estate tax laws because in most cases a properly prepared will is necessary to implement estate tax reduction strategies. It is important to review and update your will on a regular basis. Most wills were originally written with the existence of a federal estate tax at a certain level.
In addition, your taxable estate may be larger than you think. For example, although life insurance, qualified retirement plan benefits, and IRAs typically pass outside of a will or estate administration, retirement plan benefits and IRAs (and sometimes life insurance) are still part of your federal estate. As such, they can cause your estate to go over that threshold amount. Also, in some states, the estate or inheritance tax differs from the federal laws.
Tip: Changes in the estate tax laws and in the size of your estate may warrant a re-examination of your estate plan.
Appoint a Guardian
If for no other reason, you should prepare a will to name a guardian for your minor children in the event of your death without a surviving spouse. While naming a guardian does not bind either the named guardian or the court, it does indicate your wishes, which courts generally try to accommodate.
Name an Executor
Without a will, you cannot appoint someone you trust to carry out the administration of your estate. If you do not specifically name an executor in a will, a court will appoint someone to handle your estate, perhaps someone you might not have chosen. Obviously, there is peace of mind in selecting an executor you trust.
It helps to Establish Domicile
You may wish to firmly establish domicile (permanent legal residence) in a particular state, for tax or other reasons. If you move frequently or you own homes in more than one state, each state in which you reside could try to impose death or inheritance taxes at the time of death, possibly subjecting your estate to multiple probate proceedings. To lessen the risk of this, you should execute a will that clearly indicates your intended state of domicile.
© 2012, Bruce McFarland. All rights reserved.