In truth, everyone has an estate plan. The real question is whether the individual created the plan or the state legislature created it for him or her.
So, what is an estate plan?
It is a process wherein you identify your asset distribution goals and variables that are unique to your situation, then determine and utilize the tools that can best be used to reach those goals.
Probably the biggest problem with the legislature's estate plan is that it generally suits people who are unmarried with no children and no property. If you are reading this, you probably do not fit into that category. In my 36 years of practice, I have never had anyone request an estate plan identical to the one that the legislature created. It is actually known as “intestate succession” (dying without a will).
Having no will hits the pocketbook first in the form of increased court costs and attorney fees to settle the estate. For instance,
Another problem arises in the case of a husband and wife dying in a common disaster but not at the same instant. Without a will, everything passes to the "survivor's" family. This is true even if the survivor lives only a few minutes or even a few seconds longer than the first to die. If the husband’s children and the wife’s children are different people, the family of the first person to die will be disinherited. If the couple has no children, then all assets would likely pass to the survivor’s parents or brothers and sisters and their families. That may mean that the extended family of the first to die gets nothing, and the family of the “survivor” takes all.
If you are a single person with no children, then the property will pass to your parents. There are typically three problems with that: Your parents may not need it, they may not want it or they may not get it.
They may not want it because they may have estate tax issues of their own which will just get worse by adding your assets to theirs. They may not get it if they are on the other end of the financial spectrum and must apply for Medicaid assistance. In that case, they would be disqualified from Medicaid until all of the assets that they inherited from you are gone.
Without a will, if the assets do pass to your children, the assets will be distributed equally. What is wrong with that? You may not want to treat your children equally; ask yourself whether you would treat the children equally if you were living. For instance, if there is an age disparity, one child may have greater educational needs than another. They may have different healthcare needs, especially if one was in the accident that took your life. The children may have different surviving parents, one of whom has vastly more wealth than the other. One may have a disability or some other special need that requires asset protection.
Even in the very simple case of passing assets to your spouse without a will, the estate taxes may increase. Each person can leave up to $2 million of assets at death to his heirs without federal estate tax implications. So, say the husband has $2 million in assets, he dies first without a will and everything goes to his wife. She’s also entitled to an exemption upon her death, but she now owns his assets. If she had $2 million of her own assets, her estate has now grown to $4 million and she will owe estate taxes on the additional $2 million. This year, the estate tax is 45 percent of the non-exempt amount or in this case, about $900,000. Needless to say, the cost of creating a will is substantially less.
On the most basic level, intestate succession does not allow you to name an executor to handle your financial affairs, a guardian to take care of your minor children or a conservator to handle your children's assets. Incidentally, the children would receive their entire share at age 18 whether or not they are ready to handle the responsibility.
So some basic takeaway points are that being a good steward of your assets:
Requires that you do at least some simple estate planning.
Directs how you want your property to be distributed.
Helps you avoid unnecessary tax and reduce expenses.
Enables you to appoint persons to carry on in your absence to administer your assets and manage the care of your minor children.
Very simply put, helps avoid big surprises for your family and loved ones.
These types of issues are complex. You should seek the assistance of an expert to help you determine goals and what variables are unique to your situation. That person also can help you select the best tools to reach those goals and understand how to use those tools. One of those tools is a will. However, a trust may be better suited for your needs, or perhaps you may need much more complicated estate planning tools.
Pension funds, life insurance and annuities, with beneficiary designations, should be coordinated with your estate plan. Consider including a living will for end-of-life decisions and powers of attorney for medical and financial decisions in the event that you become incapacitated. There may be other documents to assist your loved ones in handling your affairs until you recover.
It is never too early to start this process, and it requires periodic reviews, such as when a change in family or business status occurs. It’s not something to put off; contact an experienced attorney soon
Doyle Sanders is an attorney with Beving, Swanson & Forrest, P.C., based in Des Moines, Iowa.