Estate Planning: When do I need a Will?

Often I notice clients focusing heavily on the investment aspect of financial planning without giving adequate consideration to estate planning. It tends to be clients under 35 and those who are unmarried who often don’t think they need estate planning. In many cases they do and should spend the time and small amount of money required to establish a will and do a few other things which I’ll discuss below:

What exactly is a will?
Your will makes provisions for how you want to dispose of your assets after you die. A will can be simple, one-page, and to the point, or it can be joint with a spouse or contractual with multiple parties. The complexity of wills tends to correlate with the size of an estate. When possible, the simpler your will, the easier it will be to distribute assets and avoid excessive probate.
A typical will has preliminary clauses which identify your name, state of permanent residence, and a clause which states this will trumps any prior wills you may have created. It then goes into the disposition of assets, the name of the person who will carry out the wishes of your will and finally the signature of a witness that you are signing these wishes into a legally binding document.
Should I do an online will?
Eh, probably not. It’s better than not having one at all but for a couple hundred bucks its wise to have an attorney draft and execute a will on your behalf.
When should I create a will?
I suggest doing so when you have at least one important asset to protect. This could be a home, a small business, an accumulation of cash or securities, etc. Technically anybody ‘of age’ (18) can create one. In order to create a will you have to be competent enough to understand the nature of your will, the extent of your property, and who your immediate family is.
What if I don’t have a will?
State laws vary regarding intestacy (dying without a will) but generally the state will appoint an administrator to settle and distribute the estate. As mentioned above, a spouse, followed by children, grand-children, etc, will usually inherit the majority of assets. If a person has no identifiable family and nobody comes forward, the state can end up keeping the money. The obvious reason not to die intestate is that the state has no clue what you preferences would have been for giving away your assets. Each family has its own dynamics which standard written guidelines couldn’t possibly anticipate. The state doesn’t make provisions for charity and doesn’t think in a ‘tax-friendly’ manner the way an estate attorney or financial planner might.
Do I need a will, even if I have designated beneficiaries?
I get this question all the time and the truth is that you can often use ‘will substitutes’ to avoid many probate issues. When it comes to real property you can often own it with a title that names the rights of a survivor. This way the property will automatically transfer to a spouse or other family member instead of going through the probate process. When it comes to bank accounts, brokerage accounts, insurance policies, etc, you often must name a person to receive your account balances or policy benefits if/when you pass away. Your beneficiary designation will often trump what is stated in the will if a conflict comes up.
What’s the story with taxes on the estate?
We don’t yet know what the asset base for estate taxes will look like after 2010. This year it’s $3.5M and in 2010 there is currently no estate tax. It quite possibly could revert back to $1M. For anybody who dies in 2009, the first $3.5M of an estate is free from taxes. In 2010, the estate tax will be repealed. At any point Congress can vote to further extend the repeal of the estate tax or pick a new number they are comfortable with.
For any amount of an estate over the exempt amount ($3.5M this year) the tax rate is a whopping 45%. Estate planning attorneys and financial planners will often have tips on how to start transferring assets while alive to reduce the value of an estate and keep it subjected to fewer taxes. Giving to charity would be one honorable way to reduce the size of an estate.
How should life insurance factor into my estate plan?
Life insurance is a convenient tool to handle debts payable at one’s death or for business continuity at the death of a business owner. Life insurance basically dedicates a sum of money to someone or something else when one dies. It is commonly used to provide money for a spouse and children in the event of untimely death but has many creative purposes as well.
From an estate planning perspective, life insurance is used to pay estate taxes and debts left by the decedent, to retire the debt of a decedent, such as an outstanding mortgage. It’s also used to create an income stream or to help a beneficiary accumulate wealth.
Based on the needs of the client, there are many different types of policies which may be applicable. For example, a joint-life policy is good for business owners because the surviving owner, regardless of who it may be, would receive the proceeds of the policy.
Insurance proceeds can be established with various settlement options such as a lump sum or an annuity.
I hope this primer is helpful. You should speak with a financial planner and ask questions about your current estate plan. A little time and effort thinking about these issues can save you and your loved ones a giant headache down the road.
Russell Bailyn

Wealth Manager
Premier Financial Advisors, Inc
14 E 60th Street, #402
New York, NY 10022
P: 212-752-4343 *31
F: 212-752-7673
Securities and certain investment advisory services offered through: First Allied Securities, Inc., a registered Broker/Dealer. Member: FINRA/SIPC. Premier Financial Advisors, Inc. is a Registered Investment Advisor. First Allied Securities & Premier Financial Advisors are not affiliated entities.
Please consult an attorney for specific estate planning advice

4 thoughts on “Estate Planning: When do I need a Will?”

  1. Thanks, I’ve had this on my todo list for awhile. This is a kick in the pants to get it done.
    I’ve been wondering if it can get complicated and if you need to specify an inheritance tree.
    For example:
    1. I pass away: My wife gets everything
    2. Both my wife and I pass away: Kids get everything, parents take care of kids
    3. All of us pass away: Split between parents and siblings.
    How exactly does that work?

  2. You ask, “What’s the story with taxes on the estate?” The answer you offer is an incomplete one, since it only contemplates only federal estate taxes. Many states (e.g., MD) impose their own estate taxes, which can be very substantial (e.g., high non-deductible rate and $1M exemption rather than fed $3.5M); wile others nearby have no estate tax (e.g., VA).

  3. The law differs from state to state, so the answer(s) to your question (“I’ve been wondering if it can get complicated and if you need to specify an inheritance tree…How exactly does that work?”), so the answer(s) will differ depending on the state in which you resided at the time of your death. If you have minor children or assets of any consequence, it is best not to die without a will (intestate). -Adam

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