Although Living Trusts are widely regarded as one of the most effective tools in estate planning, most people neglect to establish a trust because they feel that their estate is too small to justify the time and expense of preparing one. Even people with large estates sometimes fail to execute a trust simply due to procrastination or a disinclination to broach this sensitive subject with their loved ones.
As an alternative, a simple will can be an effective and inexpensive tool to make sure your last wishes are carried out. Here are 5 reasons why you should consider executing a Will:
Reason 1. Minimize Estate Tax
Many people feel they do not need a will because they think their taxable estate does not exceed the amount allowed to pass free of federal estate tax. However, they may be wrong in this assumption as most people neglect to consider life insurance proceeds, qualified retirement plan benefits, business interests, partnership interests, tangible assets, collectibles, or real estate as part of their estate. Also, in some states, the estate or inheritance tax differs from the federal laws. A properly prepared will is necessary to implement estate tax reduction strategies.
Reason 2. Ensuring your estate goes to who you choose.
The intestate succession laws of the state in which you live determine how your property will be distributed if you die without a valid will. In effect, by not having a will, you are allowing the state to choose your beneficiaries. In most states the property of a married person with children who dies without a will (i.e. intestate) 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. If the parents are deceased, the property will be distributed evenly to all surviving siblings.
These distribution methods may be contrary to what you want. A will allows you to specify not only who will receive the property, but how much each beneficiary will receive.
Reason 3. Establish Domicile
If you move frequently or own properties in more than one state, you may wish to firmly establish domicile (permanent legal residence) in a particular state to avoid the possibility of subjecting your estate to multiple probate proceedings in different states.
Reason 4. Appoint a Guardian
If you have minor children, you should definitely have a will drafted to name a guardian in the event of your death without a surviving spouse. While naming a guardian in your will does not legally bind either the named guardian or the court, it does indicate your wishes, which courts generally try to accommodate.
Reason 5. Name an Executor
Without a will, the Probate court will generally appoint an Executor to administer your estate. This person may not be someone you would have selected. Naming your own Executor in the will gives you a peace of mind knowing that someone you trust will be in charge of carrying out your last wishes.
It’s important to keep in mind that although having a will puts you on the right path, the best course of action is still a coordinated estate plan.
By Andrew Chou, CFP®
Special to FPA