A summary of why all Americans, and particularly those with children, would likely benefit from estate planning.
Ask any legal adviser, accountant, or financial planner about the single most important step to take for the future of your family and the answer will likely be: write a will.
A 2012 survey published at Rocketlawyer.com found that half of all Americans with children do not have a will. This means that their offspring could face prolonged probate court decisions, the loss of estate funds, and even the possibility that young children could end up in the custody of undesired guardians in the event of an unexpected death.
But, before running through the main reasons to write a will, let’s begin by defining some common legal terms. What exactly are wills, trusts, and estates?
A will, or testament, is a legal document in which a person (called the testator) declares who will manage his or her estate after death. It explains how and to whom the testator’s property and other assets will be distributed.
An estate represents all of an individual’s assets (such as personal possessions, land/real estate, monetary entitlements, etc.) minus all liabilities (debts or other financial obligations).
Estate tax (sometimes called inheritance tax) is a progressive tax levied against an estate by federal and state governments upon death – progressive meaning that the percentage of taxation increases with the overall monetary value of the estate.
A trust is a financial vehicle that a person or couple can contribute assets to during their lifetimes (and sometime after), which will be managed by a person (known as the "trustee") of their choice, according to directions they set up at the time they create the trust. The idea is that the trust may be used to distribute assets and avoid certain probate court issues more efficiently than a simple will, alone.
And now, the Top Five Reasons to Write a Will:
1. You decide who receives your property. Without a will or trust, your estate will enter unguided into probate, the process whereby the local court system applies statutory controls to distribute your assets. However, with a will or trust, while your estate will still go through the probate process, generally the court will simply enforce your wishes. Using wills and trusts, you can control the distribution of your personal assets in a myriad of ways - dictating who will receive what assets, how and when.
2. You appoint a guardian for minor children. Similar to your assets, if your death leaves behind children under the age of eighteen and you do not have a will or a trust, the guardianship of these children will be decided by the courts, pursuant to statute. However with a will and/or trust you can declare who is to raise your kids. These may be approved family members, friends or other legal guardians. Likewise, a will allows you to identify specific family members you do not wish to raise your minor children.
3. You name your executor. A will lets you determine who will handle all of the financial affairs associated with your estate upon death. Naming someone who is trustworthy and knowledgeable in financial matters as your executor (rather than family members who may or may not have such skills and qualities) could be the single most important factor in preserving the greatest value of your estate and insuring that it is equitably distributed. Rather than having the courts appoint someone through probate who may not be familiar with your family, your desires and your traditions, you can personally select a person to execute your will that you know and trust.
4. You can make grants and donations and may be able to minimize estate taxes. Wills and trusts offer you the opportunity to award gifts to individuals and organizations outside the family for the purposes of benefiting the community at large. What is more, in certain circumstances such gifts are exempt from estate taxes.
5. You can choose who (if anyone) to disinherit. Wills and trusts often allow you to remove specific individuals from the list of family members who stand to inherit some portion of your estate. Thus, for example, you may be able to explicitly disinherit a spiteful relative or malicious ex-spouse. While this might seem petty, removing an uncooperative or selfish individual from the list of inheritors could be the best way to insure that the intended recipients of your assets get exactly what the testator wishes them to receive without fighting about it in court.
Other reasons to make use of wills, trusts and powers of attorney are as various as each individual’s particular circumstances. Have a small business you want passed on to your children? You’d be best served by having the business discussed explicitly in your will or trust. What about unexpected medical conditions that could render you unable to make vital decisions or to communicate these to your family? In cases such as these, a medical power of attorney or a living will can help elderly or infirm individuals control their medical futures.
Finally, having a will can assure that those who are left behind are protected by a legal document designed to guide them through a very difficult time. At such a moment knowing the exact wishes of a deceased loved one can go a long way toward easing the emotional burden placed on grieving family and friends.
Pippenger Hedberg Law handles wills, trusts, estate and medical planning. Click the link for more information.