There Definitely is an Afterlife, But You Aren’t In It

We were having dinner with some friends a few weeks ago, and since one of our friends is an estate attorney, the topic of wills and other estate documents came up. Surprisingly, of the four couples around the table, two did not have a will. It turns out this is not uncommon. A survey by Rocket Lawyer, an on-line legal service provider, found that more than half of adults do not have a will or estate plan. More surprising is that over half of Americans age 55 to 64, and nearly two thirds of Americans age 45 to 54 do not have a will.

There doesn’t seem to be any confusion about the need for a will. Most people’s reason for not having done one, from the survey, is that they haven’t gotten around to it. Only 17% said they didn’t think they needed one. Everyone needs a will. Even if you don’t have much in the way of assets, you still want to have some say over what happens to what you do have. What happens if you don’t have a will?

If you haven’t left instructions for what will happen with your assets, the state where you live will make the decisions for you. Each state has a set of default mandates for the distribution of your estate, a legal word for all that you own, big or small. Regardless of what you might want or have even told your family and friends, the state will follow their default rules for distributing your belongings. In some states, the default may be as far away from what you want as you can get. For example, in many states, your surviving spouse might have to split your assets with your parents and siblings if you haven’t left a will indicating that all of your assets should go to your spouse. If you have children, and both you and your spouse have died, the state will appoint a guardian according to the rules of the state, and that might not be who you intended. While in most states, your children will automatically inherit a portion of your assets, if they are under the age of eighteen, the court will administer (for a fee) their share of your assets, making it unnecessarily difficult for your spouse or your children’s guardian to access the money they need to raise your children.

A will can go a long way toward making life easier for those you’ve left behind. To have an attorney prepare a will alone will cost around $1,000, but could be more depending on where you live. There are on-line resources for preparing a will that are cheaper. These can run less than $100, and may be all you need if you don’t have much in the way of assets and you don’t have children. You would be well served by having an attorney review these documents though, because small mistakes can have big consequences. A simple review of documents you create on-line will be cheaper than the full preparation.

There are some things that your will won’t cover. What happens to your 401(k), or other employer sponsored retirement account, your IRA (individual retirement account), life insurance or annuities are all governed by your beneficiary designation. It does not matter what your will says, these accounts will be turned over to your beneficiary. This sounds great. One less thing to worry about. However, if you don’t keep your beneficiaries up to date, it can be a disaster. In my investment advisory firm, we had a client whose husband passed away. Most of their savings were in his IRA. When he remarried he named his new wife, our client, as his sole heir in his will, but he didn’t think to change the beneficiary on his IRA. His entire IRA was distributed to his ex-wife. Our client was left with substantially less money to live on in retirement than she planned.

Children under the age of eighteen cannot receive a retirement account distribution or insurance proceeds directly, so do not name your children as beneficiaries, unless they are over eighteen. The annuity business that I managed dealt with hundreds of spouses as well as court appointed guardians who were trying to raise children who had been named as beneficiaries of life insurance policies. These guardians had to go to court every time they needed money for the kids with documentation for why they needed it. The courts are simply trying to protect the kids, but in doing so, they make raising them far more difficult.

If you have children, you may want to consider establishing a family trust. A family trust is a legal entity that can hold your valuable assets. It allows your family to have access to your assets, according to your will, without going through probate. Probate is the legal process that validates your will (if you have one) and assures all of your debts are settled and your remaining assets are distributed. Probate can take a year or more and cost money- up to 5% of the value of your assets. With a family trust, all of the assets that have been transferred to the trust are accessible by the trustees and beneficiaries without first going through probate. You can designate the trust as the beneficiary of your retirement and insurance accounts, ensuring that the money is immediately available to those who will need it.To establish a family trust, you will definitely want to consult with an attorney. The cost for a family trust ranges depending on the complexity, but one can be prepared for about the same cost as a will.

While you are thinking about wills and trusts, it isn’t a much bigger leap to a full estate plan. A full estate plan will include documents that help your family make decisions and manage your affairs while you are alive if you have become incapacitated. These include a health care directive and a financial power of attorney. A health care directive documents your wishes in regard to the types of care you want to receive, and gives a person you name authority to make health care decisions for you in line with your wishes. A financial power of attorney gives a person you trust authorization to pay your bills, and otherwise manage your affairs while you are incapacitated. In addition to these legal documents, record your on-line accounts with your usernames and passwords, and save them in a safe place, such as a safe deposit box. This is so the person who has your financial power of attorney knows what accounts you have and can easily access them.

No one wants to think about dying, but there is definitely an afterlife. It is the life the people you love will have to live without you. If there is one true gift that you can leave them, it is an easier transition into that life. A little time putting in place a will, and if appropriate, a family trust can help them avoid the stress and frustration of dealing with a rigid legal system, whose intentions are good but where the results may not be in their best interests.

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