Wills and Trusts and Why You Need Them

Jul 1, 2010 | 0 comments

What if someone dies without a will or trust?

If you don’t have a will, the state has one for you that dictates which relatives get your assets, whether you want those folks to get your stuff or not. Each state in the U.S. has intestacy statutes that say how assets will be divided upon your death if you don’t have a will. While this varies from state to state, the line of succession usually goes to spouse and kids, parents, siblings, and depending on who’s alive or dead, on to grandparents and/or nieces and nephews.

“Let’s say that you are not married, have no kids, and your parents are dead, so everything would go equally to your siblings. Well, maybe you don’t like your siblings or you have a significant other that you really want your assets to go to. Without a will or other arrangements, your assets would all go to your siblings,” says Steve Hartnett with the American Academy of Estate Planning Attorneys.

A will overrides intestacy, specifying how you want to distribute assets that are titled in your name at death. Having a will does not avoid probate court, however.

“The process that is used to change the title from the name of someone who died to the new people is called probate. That’s the administration of the assets at death, and that can be a time-consuming and potentially expensive process depending on the state,” explains Hartnett.

Revocable living trusts are used by estate planning attorneys to avoid having assets go through probate, such as a house, brokerage account, or business. A trust can also provide for you in the event of incapacitation, such as a coma, that makes you unable to manage your affairs. If you become incapacitated, your successor trustee can step in and manage those assets for you in a very simple process that requires a physician’s certification. At your death, the trust divides up the assets the way you want it done.

Other ways to avoid probate include different forms of ownership, depending on the state. With joint tenancy in the ownership of the home, the property would pass to the surviving joint tenant, who is usually the spouse, but there can be income tax, estate tax, and asset protection issues. Beneficiary designations in 401Ks and IRAs go automatically to the person named as the beneficiary. In many states, a bank account can also be set up as a Transfer On Death Account (TOD) that goes directly to the person named as the beneficiary.

“It’s important to work with an attorney who’s experienced in estate planning issues,” says Hartnett. “It’s a very complicated area, not something that you can just dabble in and be effective. Thousands of laws change each year that impact on estate planning and it takes a lot to stay up on it.”

A Good Goodbye