The Importance of a Will and the Right Questions to Ask
WHY YOU NEED A WILL OR LIVING TRUST
It’s inevitable that one day we’ll all die. Yet, more than 60% of Americans will not bother to draft wills, which often leaves a legacy of financial hardship and family feuding for their loved ones. When real estate is involved, the situation can be even worse.
Keep in mind, if you die without a will, which is referred to as intestate, the state in which you lived would determine who receives your assets (those left solely in the decedent's name). In other words, the state court system – not you or your family – will determine who gets what! Thus, complete strangers will make decisions having a huge impact on your family members’ lives.
In this chapter we encourage you to talk with an attorney about the benefits of a will and/or a living trust now that you own real estate.
The purpose of a will is to provide you with a way to distribute your property at the time of your death in any manner you choose. This document is filed as a public record after death for anyone who is interested in seeing it. It’s one of the most important steps in protecting your loved ones and ensuring your wishes are followed after your death.
There are specific rules, however, about how the real estate you own can be willed. It depends on the form of ownership you listed when you purchased the real estate. If you are a homeowner, the title of your property does not automatically go to your family, unless you are a surviving spouse. This type of ownership is defined as joint tenancy. Or, if you own this property with another person as joint tenants with right of survivorship, the property will pass directly to the remaining person or entity upon your death, avoiding the probate process, which we describe below. With joint tenants with right of survivorship, it doesn't matter if the other owner is your spouse – the remaining survivor will receive ownership of the property.
If you die intestate, your assets will need to go through probate. Having a will or living trust means your family can likely avoid the time, expense and hassle of going through probate. But as we said earlier, 60% of Americans don’t have wills. Let’s look more closely at what happens in this situation.
Real property valued over $20,000 is subject to probate. The probate process is a court procedure during which the state court:
- Inventories the deceased person’s assets
- Gathers information about claims made against the estate from creditors
- Investigates all claims for their validity
- Pays off any outstanding debts, including taxes
- Decides, based on state law, who gets what
If there’s a will, the executor is the appointed individual who carries out the instructions and wishes of the deceased. If there was no will, then the court appoints an administrator. The executor and administrator functions are the same and can be almost anyone, but are usually a lawyer, accountant or family member who is of legal age and has no prior felony convictions. The probate process can take months or years, and become extremely expensive depending on how complex and large the estate was. For example, a home valued at $300,000 could easily incur over $25,000 in fees before the deceased person’s heirs inherit the net proceeds from the sale of the property. Not to mention the family squabbling between family members.
There are other assets that can avoid the probate process. These assets are most life insurance policies, annuities, and retirement accounts that name beneficiaries in the event of death, known as payable on death accounts, or POD. At your death, your beneficiary simply needs to go to the bank, show your death certificate and his or her identification, and collect whatever funds are in the account. The probate court is never involved, and it doesn't matter how large the sum is. If any of these accounts were jointly owned, however, the beneficiary would not be able to take possession until the other spouse died.
Problems can occur when there is no will and no surviving spouse and it was the intent of the deceased to leave the property to children, other family members, a friend or charity.
There is, however, a tool to use to avoid probate, called a "living trust.” The living trust can take many forms. The most common are revocable and irrevocable trust.
A revocable living trust is a document stating who controls your assets while you’re still alive; normally, that’s you. You decide what you want to happen to those assets once you’re gone. The reason it’s revocable is because you can revoke it at any time while you are living. You create and fund it while you are alive. The biggest mistake people make is that they don’t take the time to fill out the necessary paperwork to fund the trust.
The objective of a revocable living trust is to allow assets to transfer without going through probate. Your estate proceedings remain private, unlike a will, which is public. As a result, a will can be challenged, mainly because the deceased’s heirs believe they know what their loved one intended for them to have. These opinions often conflict. You’ve probably heard this act as “contesting” the will. This is why wills do not go into effect immediately and the deceased’s wishes are not administered until they are court ordered.
The difference between a revocable and an irrevocable trust is the irrevocable living trust cannot be changed once it has been created. Whatever assets are placed in that trust cannot be withdrawn by the Grantor – the person who made the trust and to whom the items belong – at any time, no matter what.
In Summary, don’t be one of the 60% of Americans who don’t have a will or a living trust. You’re condemning your heirs to the hassles of probate if you don’t get organized on this. There are many details regarding wills and living trusts that we didn’t cover here. Ask a tax advisor, attorney, or estate planning professional if some kind of living trust is best for you. Be sure to select an attorney with experience in estate planning, specifically in establishing living trusts, if that’s the route you want to go. Vow to leave a legacy your family can build on and use to get ahead!
