Where there’s a Will . . .

April 6 – Now (Photo credit: iowa_spirit_walker)

. . .there are usually some opportunities for tax and estate planning.

Most people don’t appreciate the importance of a will, especially if they think their estate is below the level of the estate tax exemption. Even people who recognize the need for a will often don’t have one, perhaps due to procrastination or the lack of incentive to broach this sensitive subject with loved ones.

The truth is nearly everyone should have a will. Here are just a few of the reasons.

 To Choose Beneficiaries:

Intestate succession laws of the state in which you live determine how your property will be distributed if you die without a valid will. For example, in most states the property of a married person with children who dies intestate (i.e., without a will) generally will be distributed one third to the spouse and two thirds to the children, while the property of an unmarried, childless person who dies intestate generally will be distributed to his or her parents (or siblings, if the parents are deceased).

These distributions may be contrary to what you want. In effect, by not having a will, you are allowing the state to choose your beneficiaries. Further, a will allows you to specify not only who will receive the property, but how much each beneficiary receives. For a discussion on how the differences between per stirpes and per capita affect your children and beneficiaries, see this link to our website.

 To Minimize Taxes:

Many people feel they do not need a will because their taxable estate does not exceed the amount allowed to pass free of federal estate tax. These assumptions, however, should be reviewed given the current state of change in the federal estate tax laws because in most cases a properly prepared will is necessary to implement estate tax reduction strategies. It is important to review and update your will on a regular basis. Most wills were originally written with the existence of a federal estate tax at a certain level.

In addition, your taxable estate may be larger than you think. For example, although life insurance, qualified retirement plan benefits, and IRAs typically pass outside of a will or estate administration, retirement plan benefits and IRAs (and sometimes life insurance) are still part of your federal estate. As such, they can cause your estate to go over that threshold amount. Also, in some states, the estate or inheritance tax differs from the federal laws.

 To Appoint a Guardian:

If for no other reason, you should prepare a will to name a guardian for your minor children in the event of your death without a surviving spouse. While naming a guardian does not bind either the named guardian or the court, it does indicate your wishes, which courts generally try to accommodate.

 To Name an Executor:

Without a will, you cannot appoint someone you trust to carry out the administration of your estate. If you do not specifically name an executor in a will, a court will appoint someone to handle your estate. Obviously, there is peace of mind in selecting an executor you trust.

 To Help Establish Domicile:

You may wish to firmly establish domicile (permanent legal residence) in a particular state, for tax or other reasons. If you move frequently or own homes in more than one state, each state in which you reside could try to impose death or inheritance taxes at the time of death, possibly subjecting your estate to multiple probate proceedings. To lessen the risk of this, you should execute a will that clearly indicates your intended state of domicile.

To empower your spouse/executor to use the new portable exemption for estates:

In an effort to preserve the unused estate exemption of a deceased spouse, Congress made permanent the estate portability clause on January 2, 2013. For full details see our prior newsletter at this link.  A properly worded will won’t automatically implement this for you, but it can delegate the authority to your executor to have it done and make your desires clear.