Seven out of ten Americans die without a will, according to a widely cited statistic. We don't believe in statistics. Indeed, we have figures that prove they are not always accurate.
Although the figures on the number of Americans who die intestate may not be accurate, there are statistics which have 100% certainty. Statistics do show that two things are certain -death and taxes.
A will cannot prevent death. Conversely, it will not hasten death.
A properly drawn will assures that your property will go to those you wish to benefit. And, it can save taxes.
We hope you will take the short quiz on the next page-and then take a few minutes to read this booklet. Your family will thank you.
Which of these statements are true and which are false?
- I don't need a will because all my property is in joint ownership or I plan on putting my property in joint ownership.
- I don't need a WiII because my major asset is life insurance and it is payable directly to my spouse.
- I don't need a WiII because the law will take care of distributing my property for me.
- I live In a community property state and, thus, do not need a will.
- I made a will ten years ago so I have taken care of my estate planning.
- I made a will last month and, thus, I have taken care of my estate planning.
- I can draw my own will by buying a form at the stationery store.
- My spouse owns most of the property so I don't need a will.
- I am a woman and, thus, I don't need a will.
- I have a modest estate so I don't need a will.
They are all false.
Why you need a will to assure that your will, will be done
Without a will, your state, rather than you, will determine to whom, how and when your property will be distributed. Close relatives will receive your estate, but generally not in the shares you would have wanted.
Intestacy laws vary among the states. In some states, for example, an individual who dies without a will, leaving a wife and children, will have his property distributed one third to his surviving wife and two-thirds to his children.
A court appointed guardian will have to be designated for the minors. Generally, a costly bond will be required. Before using any part of your children's share for their support or education, the guardian generally has to get court permission. And he must file periodic reports with the court. This can be expensive.
In some states when an individual dies intestate (without a will) leaving a spouse and no children, his entire estate will not go to his spouse but will rather be shared by the spouse, parents, siblings, etc.
With a will, you name your executor-the person, bank or trust company-who will manage and settle your estate according to your wishes. Without a will, the law determines who settles your estate. Your executor's job is important. He: (a) follows the instructions in your will, (b) safeguards the interests of current and future beneficiaries, (c) meets the legal requirements of state law and tax authorities, (d) determines the validity of claims against your estate, and (e) exercises investment judgment.
Executors' fees can be saved, for smaller estates, by naming a spouse or adult child as executor. Alternates should be named should a designated executor fail to qualify or cease to serve. For sizable estates, banks and trust companies are often named as executors. Consult your lawyer on selecting your executor and the other aspects of making your will.
Your will names the guardian who will raise your minor children and manage their property. A will can often dispense with costly bonds and expensive accounting requirements.
Your will can create trusts for your spouse, children and others which will protect them against loss which might result from inexperience. Trusts also save income and estate taxes. Your lawyer will give you the details.
Your will can reduce and sometimes even eliminate estate and inheritance taxes. You can take maximum advantage of the marital deduction. Furthermore, through a will you can also save taxes on the death of a surviving spouse. Here, too, your lawyer is the one to consult.
Your will can specify whose share of your estate will be charged with taxes. Otherwise, the share of your estate received by the one you wish to benefit most may be charged with the taxes. Also, additional taxes may have to be paid.
A life insurance designation is no substitute for a will. Most people have property in addition to their life insurance. Furthermore, life insurance options are not flexible -especially when minors or beneficiaries inexperienced in managing funds are involved. Often, a good estate plan involves having life insurance proceeds, as well as company pension and profit sharing benefits, added to a trust created in your will (or to a trust created during lifetime). The life insurance proceeds are then managed under the terms of the trust. Your heirs benefit by having the assets administered under a coordinated plan -rather than on a hit or miss basis.
A will enables you to make charitable gifts to schools, churches, hospitals, health, welfare and other qualified charitable organizations. The laws which govern when a person dies without a will does not provide for charitable gifts.
The prime motive for making a charitable gift is to benefit a charitable organization and not to save taxes. However, once deciding to contribute, you will find that the estate tax savings are substantial. They not only reduce the cost of your charitable gift, but often enable an individual to give more than he or she initially thought possible.
An unlimited federal estate tax charitable deduction is allowed for gifts to our and other charitable organizations.
Example: Presvytera Hatzipapathanasiou, a widow with no children, has an adjusted gross estate of $400,000. If she leaves her entire estate to her niece (who is already well provided for), the federal estate tax (before any credits) will be $94,500. Her will gives $200,000 to our institution and $200,000 to her niece. Her estate tax is reduced to $32,700 because of the $200,000 charitable deduction. Presvytera estate saves $61,800 in estate taxes by giving part of her estate to our institution. The $61,800 estate tax saving reduces the actual cost of her $200,000 charitable gift to $138,200.
With a will, you can create a trust which will pay income to a surviving spouse or another for life. Then, our institution will receive the trust principal. This type of trust, called a charitable remainder trust, gives your estate a sizable estate tax charitable deduction.
Many individuals create these trusts during lifetime-providing income for themselves for life and then for a survivor. By creating a charitable trust during lifetime you get a current income tax charitable deduction as well as estate tax benefits later on. Frequently, locked-in appreciated investments can be changed - for greater yield, diversification or both -without paying capital gains taxes.
Here is some additional information for your consideration.
Pitfalls to Avoid
I don't have much property and besides, the law will distribute my property for me this is a pitfall. Yes, the law will distribute your property, but often not according to your wishes. And you may be worth more than you think when you add up your life insurance, pension benefits and your home. Remember, inflation has increased the value of most estates.
A person with minor children-even if he has few assets-should have a will to designate the guardian of the children -if there should be no surviving spouse.
The joint property pitfall. Joint property is a type of ownership under which the survivor becomes the sole owner. To rely on joint ownership instead of a will can be hazardous.
Suppose the other joint tenant dies first. Without a will the property will not necessarily pass as you would have wanted, but arbitrarily under your state's intestacy laws.
Sometimes a joint tenancy-especially for a bank account-is questioned on the ground that it was created only for convenience and not intended to pass property to another.
Once putting property in joint name with another, you may not be able to change the type of ownership. Joint ownership can present tax problems. There may be a gift tax in some instances when a joint tenancy is created. Sometimes unnecessary estate taxes are payable. The law presumes that the first of the joint owners to die paid for the property and it is includable in his or her estate unless the estate is able to prove that the survivor furnished the consideration.
Consult your own advisors on the ramifications of joint property ownership-as well as all other aspects of your estate plan.
I don't need a lawyer to draw my will pitfall. No will has its twin brother. Each is drawn to meet particular needs. Homemade pies are sometimes superior, wills never. A skillfully drawn will can often save estate taxes not only for your estate, but also for a survivor's estate. And most important, a skillfully drawn will coordinates your will with the balance of your estate plan.
I am a woman and do not need a will pitfall. A woman, whether married, widowed or single, should have a will.
A married woman who owns no property in her own name and whose husband has "already done the estate planning for the family,” needs a will. Although she has no property now, she will have a substantial estate if her husband dies first. If a wife dies after her husband -and without a will- her estate will pass according to her state's intestacy laws. Often, the property will not pass as the husband and wife would have wanted.
It is not a good idea for a woman to wait until she becomes a widow to make her will. If she dies as a result of a common disaster with her husband, she may not have time to make a will. And a widow is often under great strain - not the best time to make important decisions. Also, a widow may be subject to undue influence from others.
A married woman with property of her own also needs a will. Here, all the reasons why a husband should have a will apply. Under her state's intestacy laws, a smaller part of her estate may go to her husband than she wishes. Or sometimes, it is good planning for a wife to give her well-to-do husband a smaller part of her estate than the intestacy law provides. By so doing substantial estate taxes can often be saved on her husband's later death. A good plan often involves giving half of her estate outright to her husband and half in trust.
A single woman also needs a will so that she, not her state's arbitrary intestacy laws, determines to whom, how and when her property will be distributed.
The community property pitfall. When property is held as community property, one half automatically goes to the surviving spouse. [The other half passes under the terms of the first to die will]. But if there is no will, that other half passes under the state's intestacy laws. Thus, those owning community property should have a will to assure that the half of the property not passing automatically to the surviving spouse goes where desired. Community property states are: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas and Washington.
What is community property? Laws do vary from state to state-so check the law in your state with your own advisors. Generally, one half of what either the husband or wife earns while married belongs to the other as community property. Also, community property generally includes property acquired by the husband and wife during marriage as well as income from the property. But, it does not include: (1) property belonging to either spouse before marriage; and (2) property acquired by gift or inheritance after marriage.
The Complete Estate Plan
More than a will is needed. While a will is an important element of your estate plan, by itself it is often insufficient. It is essential that your entire estate plan be coordinated. Thus, for example, life insurance payable directly to named beneficiaries will not pass under the terms of your will no matter how well your will is drawn. Often, if you create trusts for your spouse and children, it is wise to have your life insurance proceeds payable to the trustee named in your will, with the insurance proceeds to be administered according to the trust in your will.
Wills provide for passing of property at death. But a good estate plan is concerned with life also-planning now to conserve your estate for your own present enjoyment, for retirement and disability.
For an individual who has sufficient assets, a good estate plan often involves giving property to family members and charities during lifetime-first for the enjoyment of giving and second to save taxes.
- List those you wish to benefit. Decide whether you want to leave a specific amount or a percentage of your estate to each beneficiary. List the beneficiary's full name, relationship, age and domicile. Is he or she married? Have children? Capable of managing property? What are the beneficiary's own financial circumstances?
- Make a list of your assets- including the current fair market value and cost-basis. Because estate planning involves the entire family, make a list of your spouse's assets also. How are the assets owned? Separate property? Joint property? Community property?
- List your debts-mortgages, loans on life insurance policies, accounts payable, etc.
Once you have a will, review it periodically. Here are signals for reviewing your estate plan and your will: marriage; divorce; death of spouse; expected birth of child; new business venture; purchase of life insurance; purchase of home; significant job promotion; move to different state; substantial increase or decrease in wealth; children have become financially independent; retirement; grandchildren; changes in tax and other laws; your business becomes an increasingly important part of your estate; substantial amounts of property in joint names; decision to make sizable charitable gifts.