3 reasons why you need a will right now

Money, Family/Kids, Relationships, Taxes

A lot of people don’t think they need to worry about a will or estate planning, at least not anytime soon. Even Prince, who had an enormous estate, didn’t have a will.

Still, you may have various assets and responsibilities—along with preferences regarding how they’re distributed or managed—and depending on your situation, having your affairs settled could be a pressing necessity. Here are three circumstances in which having a will is an exceedingly good idea:

Number one need for a will: You have children

The birth of a child often spurs people to start thinking about long-term planning, like saving for your child’s college education. In the happy aftermath of a new addition to your family, a will may be the last thing on your mind, but parents need to consider who will care for their children in the event they both die while the children are still minors. The selection of your children’s guardian is an important step in drafting a will. Colleen Mary Henes, a family lawyer in Chicago, has written about the steps to choosing a guardian. She suggests determining your priorities and desired qualifications for the person or persons who will be responsible for your children. She also notes that it is critically important to discuss your decision with the potential guardian(s) before you name them in the will, to ensure that they are willing and able to take on this serious responsibility. If any of your children have special needs, be sure to pay particular attention to their future care—even they are no longer minors. You can set up a Special Needs Trust to help ensure that they have resources to get the assistance they need, and you can direct the trustee to maximize any government benefits that may be available for the child. You can either set up this type of trust when you write your will, or specify in your will the amount of your estate to be placed in the trust. Autism Speaks, a nonprofit advocacy group for families dealing with autism and spectrum disorders, provides resources and guidance for families on this issue.

Number two need for a will: You don’t want the state to decide what happens

If a person dies without leaving a will (dying intestate), state law will determine how their estate gets distributed. Although, generally, the estate will pass to the deceased’s next-of-kin, such as their spouse, children, or siblings, inheritance will be determined by the state’s probate court. Unfortunately, the lack of a legal will can lead to nasty family disagreements about who gets what, resulting in years of litigation. Without a will that states your desires, if you die intestate, it’s possible that your property or assets won’t end up with the people you would like to have them. Maybe you have family members who need long-term assistance (and therefore a larger share of the estate), or loved ones and friends who aren’t legally related to you and wouldn’t be recognized as your legal heirs. If you are in a committed relationship that didn’t involve marriage, or you have close friends—or even pets—to whom you want to leave an inheritance, a will is essential.

Number three need for a will: You have (or expect to have) a sizeable estate

A lot of people don’t bother with a will or estate plan because they think they don’t have enough money or assets to worry about. But if you were to die intestate, it might cost your heirs real money.

When an estate goes through probate, whether there is a will or not, the estate is subject to taxes. The court will look at the totality of the estate, which could include a lot more than you thought. In addition to the obvious things, like cash in a bank account and real estate, your estate may include an annuity from a legal settlement, retirement savings in a 401(k), or benefits from a pension fund—not to mention the heirloom jewelry from a long-dead aunt or the valuable painting hanging above the fireplace.

All of this adds up, and adds up quickly. It’s unlikely that you’ll hit the IRS threshold for the estate tax. (Currently the first $5.45 million of a person’s estate is exempted from the federal estate tax, and that exemption passes through to a surviving spouse, so a widowed decedent can have an estate worth nearly $11 million before the federal estate tax kicks in). But many states have estate and inheritance taxes that take hold at much lower levels. Consider the state of Washington, for example, where the value of the estate beyond $2 million dollars is subject to a tax of 10 to 20 percent (and, unlike the federal exemption, cannot be passed on to the surviving spouse).

Just having a will won’t let you avoid estate taxes, but a will and an estate plan can help you prepare for any costs, including taxes. For instance, your will could include a bequest to an exemption trust, in an amount equal to your state’s estate tax exemption. An exemption trust provides income to the surviving spouse, and the bequest is beyond the grasp of your state tax collectors. Additionally, should the surviving spouse need to access any asset in the trust beyond what the income provides, the trustee can be authorized to make a discretionary distribution to allow the spouse to maintain his or her current lifestyle.

The bottom line

As you can see, the distribution of even a small estate can be complicated and messy. A well-drafted will helps the process go more smoothly, and it ensures your preferences for how your estate is be handled and who will be in charge of everything. Good estate planning attorneys are available in every community. Pre-paid legal services are also an affordable way to start the process or even get a complete estate plan. Either option is going to be better than leaving no will at all.

More information: