When You Don’t Have an Estate Plan …
If you don’t think it’s important to have an estate plan, just consider what will happen if you should pass away tomorrow without one. (Yes, we know it’s not the most pleasant thought. But it happens.)
Spoiler alert: The state in which you live in steps in. The state’s plan is what will determine where every asset you have will go, and to whom. Your home, your stocks, your 401(k)s, your furniture – all of it – if you don’t have a plan. The state’s plan will also decide how your minor children are raised, and by whom.
Chances are, you won’t like this plan. Not only that, but it can take your family or friends years to receive any assets of yours. Why? Because if you die without a will, you die intestate. Intestate estates go into probate, a lengthy process that can take years to complete.
Many people put off making an estate plan because, frankly, they don’t want to think about their own demise. Or it may seem like there’s plenty of time. Often times, people make the mistake of thinking they don’t have an estate. However, anyone who has any assets at all has an estate. Or you may not realize the hardship you’re leaving for your loved ones if you don’t have an estate plan in place.
In reality, estate planning and financial planning should go hand-in-hand. When a financial advisor creates a comprehensive financial plan that’s tailored to you, make sure it includes all the goals you have in life, including in retirement and in death.
To counteract common beliefs about estate planning, let’s review quickly what an estate plan is regarding your assets, and then what can happen if there isn’t one in place.
What is an Estate Plan?
An estate plan can have multiple components, but two in particular involve the deposition of your assets with your loved ones: A will and a living trust.
A will is a document itemizing your wishes about where you want your assets to go after you die. It covers who you want to receive your assets and how they will receive them. It also specifies the executor, the person who will see to it that your wishes are carried out, settle your affairs and guide your estate through probate.
A will also covers your wishes for the upbringing of your minor children, including who their guardian should be and any protection of their assets.
A will can also specify how you want to be buried.
A Living Trust
A living trust is a different method for disposing of assets to loved ones. Unlike a will, a living trust goes into effect before you die. The assets are placed in a trust. Like a will, a living trust specifies who will receive the assets, how and when.
Estate plans can help your loved ones avoid probate. Some types can reduce taxes on your estate. With this brief review in mind, let’s now take a look at what can happen if you have neither a will nor a living trust in place.
Have questions about your finances? Contact Montgomery Taylor Wealth Management to see how we can help.
Stress and Emotionally Draining Situations
Without a will or living trust, your family or loved ones can face months of stress and emotional strain.
First, all your assets are subject to the laws of the state you reside in. Each state’s rules are different. It can take some time before your loved ones will even know what the rules are.
Second, your spouse and perhaps children or other family members may be responsible for your bills and debt in the months after your death. Will they have sufficient money to pay them? They may not if you don’t have a joint checking account and you die intestate.
Third, and perhaps even more importantly, the disposition of assets can cause stress and discord in a family for many reasons. In general, assets of someone who dies intestate go first to spouses and children, or to parents or siblings if there is no spouse or children.
But what if you are not on good terms with your spouse, or in the midst of a divorce? What if you have children from another marriage? What if you want all or some to go to friends, other family members or charitable organizations? Without knowing your wishes, you may be setting your loved ones up to argue and quarrel in a way that can affect their relationships for years.
There are no rules for circumstances where a spouse, children or other beneficiaries may not be provided for in the way you want. In effect, your own will or living trust makes those rules, because you specify what you think is fair and reasonable.
Your Children May Not Be Cared for the Way You Want
Because an estate plan provides for the guardianship of minor children, the absence of one means that the state’s laws take over. The guardianship will likely go to a living spouse or, if there is no spouse, your parents. But what if you would prefer your children be raised by an aunt or a close neighbor? What if your children’s other parent has very different religious or other beliefs than you? What if your parents are too frail to care for children?
The only way to avoid these or other complicated situations is to set forth what you wish for the raising of your children.
A Judge Decides
If there is no estate plan, a judge will decide the disposition of assets and the guardianship of your children. Each state’s laws vary here. Your loved ones or friends may not be able to influence the outcome if the court has no way of knowing what you wanted.
Assets Go to Lawyer Fees
It’s only natural to want your assets to go to your loved ones and not to lawyers and other fees after your death. But the more you leave to intestacy and the courts, the more of your assets will go into lawyer’s fees. If the disposition of your assets is particularly lengthy or contentious, these fees may actually soak up the bulk of your estate.
Your Wishes are Unknown for Your Burial/After-Death Plans
While it’s safe to say no one wants to think about not being here, the fact is, most of us have a preferred resting place. You may want to be buried at sea, or a particular spot you loved (if allowed).
Without an estate plan, your loved ones may not know your wishes for burial or after death. And without an estate plan, they will have no obligation for carrying out these wishes even if they do know. The only way to ensure both is to be specific in an estate plan.Estate planning and financial planning can be complex. Add in tax planning and many people get overwhelmed quickly. Make sure to discuss your plans with a fiduciary financial advisor to ensure your best interests are put first.