When we hear a beloved celebrity or public figure has passed, we are saddened. When we learn they died without a will or trust in place (or one that was never updated to reflect current family members, finances, etc.), we are often astonished. Cases in point include the recent passing of Aretha Franklin, as well as Prince, Bob Marley, Heath Ledger and others.
Here’s an equally astonishing fact, according to a study from Caring.com:
Nearly 60% of U.S. adults do not have a will.
Three Common Reasons Why People Don’t Create a Will
Some of the most common reasons for not having a will include:
- We can’t agree on a guardian or executor.
- None of my assets are taxable.
- I don’t have enough assets to leave to anyone.
Let’s address the last two myths.
Why a Will is Necessary
First, even if your estate is not taxable, the distribution of assets still requires a will or trust.
Second, you may think you don’t have an ‘estate’ and therefore there isn’t much to fight over. However, if you own a house, cars, furniture, jewelry, collectibles, art, or investment accounts, you indeed have an estate.
How a Will Can Protect Your Children
Certainly, if you have children under the age of 18 or with special needs, the need for a will is amplified to avoid your children being awarded to the state in the event of your passing. In addition to assigning guardianship, you should set up a trust that is managed by someone who knows you and understands how you would want assets distributed ongoing. It’s important to know that assets left to a minor outright will be managed by the state if not placed in a trust.
Here’s What Happens to Your Property if You Die Without a Will
States have laws that govern what happens to property left by an individual who does not have a valid will at the time of their death. These “laws of intestacy” are designed to create order to the distribution of one’s assets. Typically, state laws lean in favor of leaving property to a surviving spouse and dependent children first, and then only if those people do not exist do other relatives come into play. It is often in this instance, when relatives begin fighting over assets, that an estate’s value can become diluted as legal fees add up.
So, you may ask, if there are laws that help identify who should inherit the property of someone who dies without a will, why all the fuss?
For starters, ask yourself if you really want the state judicial system making personal decisions for you and your heirs. Allowing this to happen is very likely to cost your estate money, fuel family disagreements, and potentially leave your estate in shambles.
In addition, the laws of intestacy only speak to the class of relative who stands to inherit. The actual identification of those people who are part of that class is left to the probate court to determine. Often, especially in the case of celebrities and the very wealthy, people come forward claiming to be part of the entitled class, and it is up to the probate judge to decide if the person really is who they say they are. Even after all the correct people have been identified, problems such as how the assets should be divided are likely to exist.
In the case of Aretha Franklin and Prince, splitting cash or liquid investments may not be difficult, but what about houses, record labels, and intellectual property? Providing an example for the more average individual, consider your house, car, boat, wine or art collection. By not spelling out who gets what, you force family members to make joint decisions about their division, and all may not agree. The likely outcome of this could be the mismanagement of assets and/or incurring major legal expenses, both of which result in less for heirs.
Why it’s Important to Review and Update Your Estate Plan
Estate planning is dynamic – not “set it and forget it.” It’s important to review your estate plan every few years to see if anything has changed, such as a new heir being born, a divorce or change in a trusted relationship, or a new charitable cause you wish to donate to posthumously.
Your estate may not be as large as Aretha’s or Prince’s estate. However, take a moment to consider what you do own. What would happen if your heirs had no direction as to what you wanted done after you died? Would they divide everything amicably, or would a legal battle possibly ensue?
5 Questions to Consider Inside Your Will
- Who should manage the estate (the Executor)?
- Who should manage any trusts that are needed (the Trustee)?
- Who should be assigned guardianship of your children?
- Who should receive your assets, when, and how much?
- If previously married, does your ex-spouse receive anything? How do assets get divided between children from current and previous marriages? What about step-children, if any?
As you can see, these questions are not always easy to answer. Nor are they all-inclusive. Please discuss the details with your financial advisor or estate planning attorney to ensure your will and/or trusts are written properly.