Despite the importance of the will in an estate plan, it is estimated that seven out of ten Americans die without a valid will. If a will is such an important document, why don’t more people have one? Unfortunately, creating a will forces you to come face to face with your own mortality – and dealing with death is difficult. But, it may be much more difficult for your loved ones after you are gone if you don’t prepare a will.
Comprehensive Estate Planning involves the preparation of a Last will and Testament. If you pass away without having prepared a last Will and Testament, your assets will be distributed according to the laws of New York State. These laws make certain assumptions regarding the distribution of your estate – assumptions which you might not agree.
Comprehensive estate planning will also enable you to state your preferences regarding the medical care you wish to receive or wish not to receive, as well as enable you to designate a person who will be responsible for making decisions concerning your health care, should you no longer be able to do so yourself.
Comprehensive estate planning also involves the creation of trusts, either within your will, outside of your will, or both.
What people do not realize is that Estate Planning is not the simple drafting of documents. It is also not the purchasing of computer software which contains legal documents such as Wills and Trusts. What you should avoid is a “one size fits all” approach to Estate Planning or an advisor that operates as a “fast food” type set-up. Instead of purchasing documents, you are actually purchasing a unique, individual Estate Plan for the financial future of you and your family.
A Financial Blueprint of Your Assets
A will is an instrument, an extremely powerful instrument, you can use to distribute your probate assets to your loved ones after you are gone. (Probate assets generally refer to those assets in your name only that do not pass to another at your death by operation of law.) Think of your will as the financial blueprint of your probate assets. Your will clearly states who will inherit your probate assets, when they will inherit your probate assets, and any conditions that must be met for them to receive your probate assets.
At death, the court rules on the validity of your will. If the will is valid, the court instructs your executor to carry out the terms of the will according to your wishes. (This act is known as a decree of probate.) The executor is the person appointed by you in the will to supervise the distribution of your probate assets.
The very first thing that your attorney should do is help you compile a very detailed and complete list of all of your assets, liabilities, income and expenses. This information is absolutely critical in determining the assets that you will need to maintain your current life style for the rest of your life, as well as your potential Federal and New York State Estate Tax. This information will also help you to determine if it is desirable or possible to transfer any of your assets to protect them from being wiped out to pay for nursing home costs or uncovered medical expenses.
What Are the Consequences of Not Having a Will?
According to many well known financial estate planners, without a will, you increase the likelihood of conflicts, bitterness, and after-death disputes between your children and other family members. Here’s how: If you die without a valid will, the court does not have your financial blueprint to follow. Therefore, it has no way of knowing how to distribute your assets.
By “dying intestate” (without a will), you lose the ability to direct the distribution of your estate. The state where you lived steps in at your death and makes the decisions for you, according to the distribution schedule set forth in its intestacy statutes. The state’s decisions are designed to pass property to those who would most benefit. Without a Will you leave New York State to guess who you would want to receive your property. Accordingly, New York State law answers questions many leave unanswered during their lifetimes. Unfortunately, the state’s decisions may not conform to your wishes or to what is best for the people closest to you. Intestacy usually means outright payments. This can cause a multitude of problems and misunderstandings, not to mention tying up your assets in the probate process for months or years.
Common Misconceptions
Here are some of the more common rationalizations for not creating a will, and the facts that quickly dispel those “myths.”
Myth: “My assets are so small that a will is not necessary.”
Fact: Think again. Few people are worth so little that a will is not necessary. Add together the value of your home, car, furniture, jewelry, savings account, and investment portfolio. Subtract from this total your personal debts. The bottom line is that you are generally worth more than you think. Even if some items do not hold great monetary value, they could hold an enormous amount of sentimental value. Failing to indicate who receives these treasures in your will can cause friction between family members that lasts for decades.
Myth: “When I die, my spouse will get all of my assets.”
Fact: If you and your spouse own assets jointly, at death your share of the assets will automatically go to the surviving spouse. But, what happens when your surviving spouse dies? What will your children receive? Does your spouse have the financial know-how to manage the family wealth? If your spouse remarries, some or all of your spouse’s assets may wind up in the hands of his/her new spouse.
Myth: “I can create a will on my own and save the legal costs.”
Fact: “Do-it-yourself” wills often do not contain all of the necessary components as required by law and are frequently ruled invalid by the courts. A vaguely-worded clause can result in lengthy legal battles. Anyone who might benefit from the invalidation of your will can contest it, and if the courts decide in his or her favor your estate may be required to cover all legal costs. Remember, the few dollars you save now can cost your loved ones thousands of dollars later.
Myth: “I don’t want my final wishes to be set in stone. I’ll create a will later in my life.”
Fact: A will is an extremely flexible document whose terms can be changed as often as needed. In fact, any legal expert will tell you that a will should be re-examined periodically to make sure it is up to date. A will should receive a checkup whenever there is a substantial change in your life. Remember, the terms of a will only become effective at death.
Utilizing Wills and Trusts to Reduce Estate Taxes
Estate tax, in simplistic terms, is a tax on the transfer of property at death. The person who dies is called the decedent and the person who receives the property is called the beneficiary. Estate Tax differs from Inheritance tax because estate tax is on the transfer of property from the decedent while inheritance tax is a tax on the receipt of the property by the beneficiary. Proper estate planning calls for the minimization of both Estate and Inheritance Taxes. “Terms” such as Gross Estate, Federal Unified Credit, New York State Unified Credit, Credit Shelter Trust and Marital Deduction are common everyday terms for an attorney who practices Comprehensive Estate Planning. For example, assume a couple has $1,300,000.00 worth of assets in their estate (including all policies of life insurance). With a “basic” will which does not encompass Comprehensive Estate Planning, the Estate Tax on the property upon the death of the second party (ie: Husband dies and then Wife dies), would be roughly $280,000.00 (utilizing the combined Federal and New York State rate of 43%). With the proper Estate Plan, and utilizing some of the “terms” listed above, a Last Will and Testament can be drafted to save almost the entire Estate Tax, thereby allowing your loved ones more of your assets for their future as opposed to the Federal Government and the State of New York.
Utilizing Family Trusts to Further Reduce Your Estate Tax and Ease Your Family after Your Demise
Irrevocable Family Trusts and Revocable Family Trusts are two (2) separate tools which are utilized by Estate Planners in order to protect your assets from being wiped out to pay for nursing home costs and expenses, as well as to avoid probate, reduce your estate taxes and provide for the management of your assets. They are documents which are drafted during your lifetime to ease obligations which may occur during your demise and after your death. The proper Estate Plan may or may not include a Family Trust, based upon your circumstances. However, utilizing an attorney who has extensive knowledge of Family Trusts can aid a person and his family by distributing a portion of his assets during his lifetime, rather than completely upon his demise.
Where Does Life Insurance Fit Into The Picture?
Life insurance is a vehicle you can use to make sure the size of your estate is not severely depleted at death. In most instances, life insurance proceeds are paid income tax free to your beneficiary(ies). Life insurance proceeds may also be arranged to be estate tax free. Besides replacing the lost income of a wage earner, the proceeds from a life insurance policy can provide estate liquidity. They can pay the estate’s income taxes, state death taxes, funeral costs, any outstanding debts, probate costs, and other miscellaneous expenses that occur at death.
Without life insurance proceeds, a portion of your estate may have to be sold quickly to meet expenses. This often forces your heirs to sell assets at depressed prices because of the immediate need for cash. The result: a depletion of your estate and a reduction in the amount your heirs receive.
Non-Financial Issues in Your Will
Most parents will agree that children are the most precious and important aspects to their life. Providing for your children during your lifetime is a twenty-four (24) hour job which requires hard work, dedication and love. Upon your death, it is vital that your children are cared for, both financially and socially. The financial aspects are provided in your Estate Plan. This Plan will designate trustees for your minor children who shall designate when and how your children should be financially provided for, pursuant to your wishes. However, your will must also contain who shall act as guardians of your children in the event that both you and your spouse die. The failure to execute a valid will can have vast repercussions on your children. For example, without the designation of guardians for your children, petitions must be filed with the Court to determine who would be best suited as guardian for your children. The petitions may lead to arguments, and Court battles which could only result in negative influence on your children. Additionally, the person who is designated as the guardian of your children may not be the person who you would want as guardian.
Living Wills
A Living Will is a document that says that in the event that you are permanently unconscious or in a irreversible physical condition with no hope of recovery, that you don’t want to be hooked up to a machine and kept alive by artificial means such as artificial respiration, tube feeding, etc. to simply prolong your dying. There are many reasons people draft living wills. Firstly, if a person is going to die, they usually want to die with dignity, not by the utilizations of mechanical forces which simply prolong their dying. Secondly, utilizing mechanical forces runs up astronomical hospital and medical bills and can completely wipe out your and your family’s financial resources. Thirdly, wanting to spare your family the emotional pain of seeing you permanently unconscious, simply “hanging on” month after month or even year after year, knowing there is absolutely no hope of recovery.
Health Care Proxies
A Health Care proxy is an extremely important document which designates and appoints another person to make all health care decisions for you if you are unable to make them for yourself. A Hospital or nursing home does not have to allow family members to make health care decision for you if you are disabled to the point of legal incompetence. They can force your family to go to court to have a court appointed legal guardian put in charge of your health care decisions. The guardian may not even turn out to be a member of your family, simply the person who gets to the Courthouse first. While such an emotional state will be going on at the time of your incapacity, the last thing your family will want to do is file legal proceedings simply to make health care decisions for you.
The Decision Is Up To You
You spent a lifetime building and gathering your assets. It’s up to you to make sure your assets get distributed the way you want. A will is a tool that must be utilized to foster this goal. Proper drafting of the Will as well as Comprehensive Estate Planning will ease your mind knowing that your loved ones will be taken care of pursuant to your wishes. It will also maximize your distributable estate so your family and loved ones will receive the majority of your estate as opposed to the Federal Government and New York State. It will designate guardians and trustees for your children so that your children will be raised by the person or people who you believe will be the best for your children Without proper Estate Planning, you may be diminishing your Estate, both financially and socially, thereby denying your loved ones of the life and lifestyle that you believe they are entitled.