We all know we should have a will. Creating one is one of those vague to-dos I intend to get to someday. There are stories upon stories of high-profile, incredibly high-net worth individuals—Tony Hsieh of Zappos, Aretha Franklin, and even Prince—who’ve passed away recently without a will. While friends of mine are often surprised when they hear stories like that, most can’t really articulate why that’s such a bad thing.
So, as the token legacy planner in my friend group, I’ve decided to put together an explanation.
First, let’s go back to our recent post where we shared all the important acronyms and definitions you could want to know relating to legacy planning.
A will is a legal document, created under state law, in which the donor defines his or her intentions for the distribution of their estate. To do this, a testator (the person whose will it is) makes bequests of specific property (i.e., stock, money, jewelry, a car, etc.) to specific individuals or organizations.
If you die without outlining your wishes through a will, in addition to leaving behind your debts and assets, you’ll also leave behind a lot of confusion and uncertainty. The situation could create legal battles between your heirs or colleagues, skirmishes between family members, and disagreements about how assets should be handled. It can result in a lot more money going to taxes and attorneys and less to the people and causes you cared about in life.
What Actually Happens if You Die Without a Will?
Dying without a will is called dying “intestate.” When this happens, the state you reside in determines where your money and assets will go. These rules–which are outlined in each state’s laws–distribute the assets of an estate based on family relationships only. These laws don’t consider special circumstances, friends, charities, or any other factors that you might take into consideration when creating your will. Additionally, no consideration will be given to minimizing tax or estate management costs. Ultimately, whatever you intend to pass on might wind up being a lot less than it could have been.
If you have children, the court will also determine who is best suited to act as a guardian. Often this will be a family member, but that doesn’t mean it would be the one you’d prefer! Pets would likely go to family as well. If your friend Samantha is a dog-lover, she couldn’t be considered as a pet guardian in most states, simply because she’s not related to you. Your rambunctious dog may wind up with your brother Bob, who works 60 hours per week and lives in a high-rise.
Probate is Bad.
Probate is the legal process in which a probate court settles the estate of a person who passes away. The process of probating the estate involves gathering and accounting for your assets, paying debts and taxes, settling claims, paying for the administration of the estate, and ultimately, distributing assets to beneficiaries.
Typically, assets that are subject to the probate process consist of real estate, financial assets, and personal property you own outright and won’t pass automatically to a third party, like a co-owner or beneficiary, at your death.
Probate generally involves paperwork and court appearances. Fees and legal costs are paid from estate property, reducing the amount which would otherwise go to heirs or beneficiaries. Formal court-supervised probate can be a costly and time-consuming process.
It’s easy to understand why a stranger making decisions on your behalf wouldn’t turn out very well for your loved ones! So what can you do to avoid this situation?
Step One: Understand Your Estate
Hopefully you’re beginning to understand the need to get this process started! To begin, you should try to get a clearer picture of your assets. What do you own, and where? How much is your “stuff” worth? Jot things down, with approximate values. Often, our clients are surprised at their net worth once they tally up their home, checking and savings and retirement accounts, life insurance, and other things they own. Then take some time to think about family dynamics, or other people or organizations you want to benefit through your estate.
Next, think through who you would want to receive each asset, and who would be best equipped to look after your children and/or pets. It’s also a good idea to communicate your intentions with these folks. While this can be an honor to someone, it’s best if it’s not a surprise!
Step Two: Update your Beneficiaries
Things like bank accounts, retirement accounts, and insurance policies can all pass over to your intended heir(s) without probate. So long as your beneficiaries are named on these accounts, they should pass straight on without issue, even if you don’t have a will in place.
In most cases, you can add a “contingent beneficiary” who would inherit the asset if your primary beneficiary was no longer alive. You could select a nonprofit to take this space. It’s an easy way to leave a legacy that aligns with your passions!
Step Three: Draft a Will
Your future self will thank you for putting in the time to create a will! And remember, you can always change it later.
There are lots of free online resources for getting a will in place, and these can be a great starting point. But it’s helpful to connect with an estate attorney, or the team at Gift Planning Services, to make sure all your bases are covered.
Bonus Round: Consider a Charitable Trust
Just like beneficiaries, assets that are placed in a trust are no longer part of your estate, and will avoid the probate process. These vehicles can be powerful estate planning tools that allow you to provide for your heirs, avoid unnecessary taxes, AND offer you the opportunity to make a surprising impact on your favorite organizations.
You Don’t Have to Do it Alone
GPS gift counselors provide an individualized look into your estate through our Legacy Gift Planning Program. Our program provides personal guidance and educational tools, so you’ll learn about your opportunities, consider customized options, and create a comprehensive plan that maximizes the impact you’ll have on the people and causes you care about most.
About the Author: Ryan comes to Gift Planning Services from the marketing and advertising world, where he learned that effective communication leads to action. Ryan’s interest in personal finance–paired with a passion for stewardship–made gift planning an ideal transition. In his free time, you’ll find him cheering on the Jayhawks, sneaking in another round on the golf course, or taking walks with his wife, Calli, in Minneapolis.