Credit: Shutterstock photoBy Joyce Streithorst, CFP®, MSFS, CDFA
Although it is extremely important to set up a will, and many people understand they have no control over what happens to their finances or possessions when they die if they do not have one in place, the findings of a 2016 Gallup Poll show only 44% of Americans have a will.
The Benefits of Having a Will
Aretha Franklin died without a will or trust, despite being repeatedly urged by her lawyer to get her legal affairs in order. Jimi Hendrix and Bob Marley each died without a will. Legal battles over their respective estates continued for over 30 years. Heath Ledger did have a will, but it was created before the birth of his daughter and never updated.
While not every fortune is of the magnitude of those belonging to these celebrities, even a modest estate should be protected with a will. A will states where your assets go upon your demise. This includes personal property (i.e., jewelry, art, furniture, etc.) as well as financial assets (bank accounts, brokerage accounts, etc.).
Some assets may have a designated beneficiary, such as life insurance and retirement accounts. Those assets do not pass according to your will, but instead go directly to the designated beneficiaries.
Your will is where you name your executor, the person who follows your instructions to settle your estate, and guardians if you have minor children. Without a will, the person or persons responsible for these important jobs are decided by a court. (For related reading, see: How to Choose the Right Executor for Your Estate.)
What Happens If You Die Without a Will
When someone dies without a will, like Aretha Franklin, they are called having died intestate. This means the laws of the state they live in will determine how their assets are distributed, and this distribution may not match your wishes.
For example, if you are married with no children, assets may pass to your surviving spouse or get split between your surviving spouse, siblings and parents in percentages determined by the state. If you are single with no children, assets could be divided between parents, siblings, half-siblings, nieces and nephews, or even more distant relatives. For someone married with children, their assets may pass to a surviving spouse, children (from the current spouse or a former partner) or grandchildren. (For related reading, see: Estate Planning: 16 Things to Do Before You Die.)
Accelerate or Avoid Probate
When you die intestate, or even if you have a will, your estate can become public information with the courts during probate. Probate can be a long process, with unnecessary delays. A will can speed up the probate process by providing the blueprint for how the deceased wished for their assets to be distributed.
You can keep things private by avoiding probate with the use of correctly funded trusts. The use of certain trusts can help avoid the time and possible costs of the probate process altogether.
Charitable Giving
Charitable estate documents can have specific bequests, such as $10,000 to a favorite charity. This can allow individuals to continue their philanthropy even after death. Warren Buffet plans to donate billions of dollars to the Bill and Melinda Gates Foundation. His plan is for his charitable bequest to be far greater than the amount to be inherited by his children.
Estate Taxes
You may think, "I don’t need to plan my estate because I’m not a multi-millionaire," because you equate the need to have a will with the desire to avoid estate taxes. Federal estate taxes are not due on estates of less than $11,180,000. State estate taxes vary and should also be considered. While many states link their exclusion amount to the federal amount, some states have their own exclusion amount and others have no estate tax at all.
Careful planning can help minimize estate taxes, especially for large estates. For artists such as Aretha Franklin, Michael Jackson and Prince, their estates include music copyright and royalty rights. The value of these rights can increase upon the death of the artist as their music becomes more in demand. (For related reading, see: 4 Ways to Minimize Estate Taxes.)
Out-of-Date Documents
Just because you did some estate planning once doesn’t mean those documents should sit in your safe deposit box and never get reviewed again. Your documents can be written to encompass some contingencies, such as naming your current children and future-born children as beneficiaries, but should still be reviewed occasionally to ensure they match your current wishes. As Heath Ledger’s will did not provide for future-born children, and his documents were not amended after his daughter’s birth, this led to a legal battle that could have otherwise been avoided.
While it can be difficult to face one’s own mortality, the many celebrities who have passed away without legal arrangements for the distribution of their estates are tales of caution. It may seem easier to ignore the inevitable, but frustration, uncertainty and potential legal battles can be alleviated with proper planning now. Work with an estate attorney and financial professional to ensure your estate is well planned.
(For more from this author, see: Choosing Life Insurance? Consider These Factors.)
This article was originally published on Investopedia.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
