A Last Gift
Your will is more than a practicality for those you leave behind.
Americans were shocked by the sudden death of musician Prince at age 57 in April. But they were even more stunned to learn he had died without a will.
It seems inconceivable that someone with an estate worth tens of millions of dollars would fail to specify how his estate should be managed after his death.
Whether your estate includes millions or little more than your home and car, preparing a will is not just a wise financial decision. It’s the last gift you can give those you love.
Being of sound mind
Bob Marley, Jimi Hendrix, even Abraham Lincoln: Prince is the latest in a list of wealthy or famous individuals who failed to leave a will when they died.
To most of us, that seems like a financial waste because a great percentage of his assets will be lost to pay taxes.
“A will is not just a method of tax savings,” says attorney Steve Zumbach of the Belin McCormick law firm. “It provides an administrative procedure for distributing your assets after your death.”
Zumbach says the act of preparing a will gives your beneficiaries a framework for carrying out your wishes, even if you have made those wishes clear during your lifetime. “If an individual dies intestate, without a will, state law mandates where property is distributed,” he says. “Most likely, though, that person had certain goals and wishes for their assets, which may not be achievable if those assets must be distributed according to state law.”
Bob Hodges of Brown Winick says, “The state of Iowa has intestate laws that provide rules of succession for property. If there’s no will, the default rules apply.”
Though the state’s intestate laws are based on common practice—assets fall to the surviving spouse, or to the children—this isn’t always the path the deceased had in mind. And previous marriages, children from earlier marriages, and step relationships can all complicate matters further. In addition, if those assets include more than just a home and bank accounts, distribution gets even more complicated.
Hereby appoint
“Setting up a revocable trust (or living trust) allows you to appoint an individual to oversee your interests and avoid probate,” Hodges says. “There are three things to keep in mind regarding probate: It’s public, it’s slow, and it’s costly.”
Zumbach explains, “By putting your assets in the name of a revocable trust, you avoid probate, and as a result, estate administration is shorter, less expensive, and private. For many estates, we use a revocable trust as an alternative to a will to implement the estate plan.”
In addition to keeping your estate private, a revocable trust eliminates the need to wait for the slow wheels of the court system to turn. And this saves your family money, as well. “The cost to your estate can be catastrophic,” says Hodges, “especially in states where the court system moves much slower.”
And if you own a business, setting up a trust enables you to choose who will administer the terms of your will after your death.
Zumbach explains, “There is simultaneously a power vacuum after a business owner’s death. This can create serious liquidity issues if no will exists since estate taxes are due nine months after death and run in the 40% range. Substantive value can be lost if there is not a clear plan for succession and governance, which a will provides.” He says if you have no will, your heirs are left to face those tax payments, and the only option for payment may be selling the business.
Bequeath these assets
Hodges explains, “Someone who owns a business needs to consider more than simply the transfer of property. A basic will may take care of the physical transfer, but it doesn’t always cover management details.”
An attorney specializing in estate planning can advise on more than property allocation. That attorney can help evaluate the broader questions involving the business, from tax-saving strategies to management succession procedures.
“You want to make sure the business goes where you want it to go,” Hodges says. “Will it be sold? Who will manage it? These are questions an attorney can help you answer so your will clearly states your wishes.”
Despite what you see in the movies, a note on a cocktail napkin may not be sufficient to see that your estate is properly managed. “If there’s no lawyer involved, the will may not be enforceable,” Zumbach says.
Unfortunately most of us view a will as a necessary evil, not an urgent task. “For most people, death doesn’t seem imminent,” Zumbach says. “They think they have to create a detailed plan. But rather than try to make a perfect instrument, I recommend putting something in place so you know your estate is protected. You can always fine-tune it later.”
Avoiding estate planning won’t make it go away. But your loved ones could see your estate go away if you haven’t planned ahead.
Hodges says, “Trust litigation is a growing field because too many people aren’t planning ahead, and too many business owners fail to mesh their business documents with their wills. You need an integrated plan if you want your assets protected.”
Taking the time to write that will now may be the greatest asset you can leave your loved ones.