Well, folks, we’ve made it to the final week of our discussion on wills and estate planning, and I think we should go out with a bang. That means that today I am going to answer the big scary will and estate planning question…
What Happens If You Die Without an Estate Plan?
All of us make plans that are based on the possibility that a specific event may occur. Many of us carry more than the minimum required amount of auto insurance because we recognize the possibility that financial loss could result from an accident. Since it is 100 percent certain that each of us is going to die at some point, you might think that everyone would have an estate plan. The fact is, though, that's just not the case.
So, what happens if you die with no estate plan? If you own property jointly, that property may pass automatically to your joint owner upon your death. If you have an IRA or retirement plan or you own life insurance, funds may pass automatically to your designated beneficiaries when you die. Similarly, property held in a trust may pass automatically to a designated beneficiary.
In general, however, the property will pass according to state intestacy laws. These laws govern the disposition of property when someone dies without a will or with a will that doesn't account for a portion of his or her estate.
This brings us to the very exciting subject of Intestacy. Let's say you die, leaving $5,000 in a savings account. Who does the money go to? Without instructions from you, the money would go to the person or people that your state's intestacy laws say it should go to. Intestacy laws vary from state to state, but there is a typical pattern of distribution: 50 percent of the property goes to the spouse and 50 percent to the children.
The biggest issue with intestacy is the fact that your actual wishes are irrelevant. Without an estate plan, regardless of your actual wishes (for example, let's say that you want all of your property to go to your spouse and none to your children), your estate would be divided between your spouse and your children.
There are many potential problems with allowing your property to pass by intestacy. For example, the distribution pattern imposed by your state's intestacy laws could result in disputes among your heirs and higher overall estate taxes. Intestacy can be particularly problematic for unmarried couples since intestacy laws generally will not include an unmarried partner in the distribution of property.
There's a very simple way to avoid intestacy, though. You can create a will.
Wills & Probate
A will is probably the most vital piece of anyone's estate plan. A will is a legal document in which you direct how your property will be dispersed when you die. It also allows you to name an executor who'll carry out your wishes, which are stated in your will. In addition, your will lets you name a guardian for your minor children. You can also create a trust in your will. And you can use your will to accomplish other estate planning goals as well, such as tax planning.
To be valid, your will must be in writing and signed by you. Your signature must also be witnessed, although the number of witnesses required varies from state to state. These requirements are important because if you aren't careful, your will may be invalid. So, see an estate planning attorney to take care of this for you, and avoid any "do-it-yourself" solutions.
Now, there is one big consideration to having a will for some people, and that's the fact that wills generally have to go through a process known as probate. If I were to get into the explanation of probate and all the details that go with it, you might be reading the same blog topic for four additional weeks. And, since I am a financial advisor and not an estate attorney, I’m not going to do that to you. However, the bottom line here is that if you want a non-family member to receive some of your estate, you better make a will. If you want things to go according to your wishes with your health, physical property, and assets, you better make a will and an estate plan with some healthcare directives.
As always, I am happy to answer any questions you may have on any of the topics I write about in my blogs. Stay tuned for a brand new topic for the month of January, and I look forward to seeing you all back here shortly!
Until next time…
One last thought, I believe an educated investor is an empowered investor. If you like what you’ve read and think your friends and family can benefit as well, please share.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended as authoritative guidance or tax or legal advice. You should consult with your attorney or tax advisor for guidance on your specific situation.