Estate Planning: Wills and Probate
Paul Tarins, RICP®,WMCP®,CSRIC™
While a will is a far more complicated document than a note, leaving a will for your family is not only a considerate move on your part; it may prevent your family from dealing with several hurdles and complications after your eventual passing. It’s a good idea to think carefully about making a plan for you and your estate when you die.
You have an estate.
It doesn’t matter how limited (or unlimited) your means may be, and it doesn’t matter if you own a mansion or a motorhome. Whether you’re considered wealthy or of modest means, when you die, you leave behind an estate. For some, this can mean real property, cash, an investment portfolio, or other investments. For others, it could be as straightforward as the $10 bill in their wallet and the clothes on their backs. Either way, what you leave behind when you die is your estate.
But I don’t need estate planning—do I?
Think about it. If your estate is small, should you still have an estate plan? If you’re just leaving behind the $10 bill in your wallet, who will inherit it? Do you have a spouse or children? Is it theirs? Should it go to just one of them or be split between them? If you don’t decide, you could potentially leave behind a legacy of legal headaches for your survivors. Estate planning is about deciding how what you have now (money and assets) will be distributed after your death.
Creating an estate plan may give you the comfort of knowing that your wishes will be carried out when the time comes. Your estate plan could include wills and trusts, life insurance, disability insurance, a living will, a pre-or post-nuptial agreement, long-term care insurance, power of attorney, and any other assets that you own.
Is having a will enough?
While your will states who your beneficiaries are, those beneficiaries may still have to seek a court order to have assets transferred from your name to theirs. In such a case, those assets won’t lawfully belong to them until the court procedure (known as probate) concludes. Estate planning can include items such as properly prepared and funded trusts, which may help your heirs avoid probate.
Incidentally, beneficiary designations for qualified retirement plans and life insurance policies usually override bequests made in wills or trusts. Many people never review the beneficiary designations on their retirement plan accounts and insurance policies, and the estate planning consequences of this inattention can be serious. For example, a woman can leave an IRA to her granddaughter in a will, but if her ex-husband is listed as the primary beneficiary of that IRA, those IRA assets will go to him per the IRA beneficiary form.
Where do you begin?
You should speak with a qualified legal or financial professional—one with experience in estate planning. A qualified financial professional may be able to refer you to a good estate planning attorney and a qualified tax professional. Once you have all these members on your team, they can work together to assist you in drafting your legal documents.
Can I create my own estate plan?
Maybe you have seen those will-in-a-box kits. Maybe you have even considered picking one up. Think twice about that. While you can draft a will on your own, there are plenty of reasons why you may not want to go that route. Remember: This is more complicated than just “leaving a note.” Most people do it themselves to save money, but they may overlook or forget to take care of some important details, the cost of which could easily outweigh any savings.
Wills, trusts, and estate plans should be crafted with the help of attorneys. Fortunately, many financial professionals have relationships with attorneys. Instead of searching the Internet or the Yellow Pages for a stranger, ask your financial adviser for a referral.
What happens without a will?
Every day, people die intestate. In legalese, this means without a will. This opens the door for the courts to decide what happens with their estates.
When no valid will exists, state intestacy laws dictate how assets are distributed. These laws may divide an estate evenly (or equitably) among heirs. Any assets held in joint tenancy may go to the joint owner. Assets held in a trust may transfer to the trust beneficiaries (with spouses getting a share of those assets in some states). Community property may go to a spouse or partner in community property states.
Simple, right? Unfortunately, the way assets transfer under these laws may not correspond to the wishes of the deceased person. Did the decedent want some of his or her estate to go to a charity or a person close to them? These laws will not allow this. State law may also decide who is the executor of the estate since the decedent never named one.
If the deceased person designated beneficiaries for his or her retirement accounts and life insurance policy, the retirement accounts and insurance proceeds should be transferred to these beneficiaries without dispute, even when no will exists. When life insurance policies and retirement accounts lack designated beneficiaries, the assets are lumped into the decedent’s estate and subject to intestacy laws.
Articulate your plans for the estate and your family.
Most people have specific ideas about who should inherit what from their estates. Anyone who cares about the destiny of his or her wealth should take this basic estate planning step.
When an individual dies intestate, the future of his or her estate is largely up to the courts. A basic, valid will stating his or her wishes may help facilitate the transition of assets after they’re gone.
Paul Tarins is an investment adviser representative of and offers investment and advisory services through Portfolio Medics, a registered investment adviser. Nothing contained herein should be construed as a solicitation for investment advisory services. Sovereign Retirement Solutions and Portfolio Medics are not affiliated.