In urging people to have estate planning documents, a response we often hear is, "I don't need estate planning documents because I don't have an estate." Here are a number of reasons why this response is almost always wrong:
1. Without a Will, the State Decides Who Your Heirs Are
Many people assume that if they die without a will, their assets will pass to their family. This may be true in some cases, but not in the way you would think. Here is an example:
A husband dies leaving a wife and children. He may think that everything goes to his wife, who can then leave it to the children. In reality, the State says it gets divided between his wife and children immediately, which creates a complicated situation.
2. Without a Will, Property may Pass to Minors
Minors [persons under the age of 18] cannot legally own property. So, if you die and a portion of your estate goes to a minor, a court proceeding must be initiated to appoint a "guardian of the estate" of the minor. This takes time and incurs expense. Furthermore, the guardian will have to file periodic inventories and request permission to expend assets on the minor's behalf. With a will, a trust can be set up to hold the property for the children until they reach the age of 18 or beyond.
3. Without a Will, Property May Pass to Your "Young Adult" Children
Your children may be over 18, so they can legally receive their inheritance outright. If they are still young adults, however, leaving significant property outright to them might not be the smartest course of action. I have talked with very few parents who think that dropping a substantial amount of assets in the laps of their young adult children is a good thing. Again, a trust can hold the assets for the children, and use it for their benefit for education, medical treatment or other expenses and then pay out the remainder over time.
4. Without a Will, the State Decides Who will Administer Your Estate
If you have a will, you can name your executor, i.e., the person authorized by law to administer your estate by collecting your assets, paying your debts and distributing the remainder to your heirs. You can also name a backup executor, in case the primary executor is unable to serve. Without a will, the State specifies a pecking order of people who can serve. Sometimes there are several people in a group who have equal rights to serve, and there can be a fight as to who will serve.
5. Without a Will, Someone Else Will Decides who the Guardian of the persons of your Minor Children Will Be
In addition to having someone to handle the assets of your minor children, there must be someone to take physical custody of them. Without a will, the court will decide who the guardian of your minor children will be. There may be a dispute among family members as to whom would be the best choice. Once again, more time spent and expense incurred. With a will, you have the opportunity to name the guardian of your minor children, as well as a backup.
6. An Estate Plan Typically Includes a Financial Power of Attorney
What happens to your financial affairs in the event of your incapacity? Nothing............ unless a court proceeding appoints a "guardian of your estate." As with a minor child's estate, the appointment of a guardian of your estate takes time and costs money. In the meantime, bad things can happen. Furthermore, the court decides who will supposedly look after your assets and use them for your benefit.
7. An Estate Plan Typically Includes a Healthcare Power of Attorney
As with your financial matters, someone needs to be able to handle your healthcare decisions in the event you are too sick or injured to handle them yourself. Without a Healthcare Power of Attorney (POA), the court must appoint a guardian to make these decisions. Again, more delay and more expense. By designating a healthcare POA, you can appoint your choice of the person you trust to make healthcare decisions on your behalf and a back-up.
8. An Estate Plan Will Address Non-probate Assets
Part of the estate planning process involves reviewing assets that may pass by beneficiary designation, e.g., life insurance and retirement benefits. This ensures that:
the beneficiary designations are kept up to date — rather than passing you your now ex-spouse]
the designations are coordinated with the rest of your estate plan — the insurance goes into the trust for the benefit of your children, like your other assets, rather than to them outright] such assets don't pass through your estate,where they are subject to claims of creditors
The estate planning process can also handle retitling of assets into joint names or made payable on death ["POD"] to avoid assets having to go through the estate administration process at all.
The bottom line is that you can save your family and heirs a lot of time, trouble, and expense by putting in place a good estate plan. Beyond that, you’re also making sure that your considerations and desires for your family, assets and even your own health are accounted for. Your time and money will be well spent.