Hello, my name is Chad Taylor, Managing Partner with MDT Financial Advisors in Houston Texas.
When Carolyn Bessette died with her husband, John F. Kennedy Jr., in a 1999 plane crash, she died without a will or an estate plan. She left behind a legal mess. Bessette was not unusual in her neglect of an estate plan. Many people, young and old, don’t have a will, let alone a broader estate plan. Yet an estate plan is important, even for families who are not wealthy.
An estate plan serves four major purposes:
1) It directs who will receive your property when you die.
2) It seeks to minimize probate costs and any estate taxes that might be owed on that property.
3) It provides for care of minors.
4) It provides for your care if you are unable to provide for yourself.
Yet it is the first issue—ensuring that your property goes to the people you want it to go to—that is often the most critical for many families.
Consider the following. Property you hold in joint tenancy with someone will go to that person, typically your spouse. Beneficiaries named in your insurance policy, individual retirement accounts (IRA), or your qualified retirement plan at work will receive that property. But if you die intestate—without a will—your local probate court will decide who receives property held solely in your name. That property won’t necessarily go to your spouse. State law determines distribution of intestate property and laws vary from state to state.
What if you want some of your property to go to friends, relatives, or children from a previous marriage? Without a will and perhaps the use of a trust (talk with your attorney to determine if this strategy is appropriate for you), your spouse might end up with all of your property. The property could later end up in the hands of someone your spouse marries, or other heirs—but not in the hands of your friend or the children from your previous marriage.
What if you are widowed or divorced? Without a will, many probate courts would distribute your assets equally to your heirs. Yet you may want the bulk of your property to go to a specific child (disabled perhaps, or low-income), and not to another (well-off, facing a divorce, or perhaps a poor manager of money).
What happens to your estate if you and your spouse die together, as did the Kennedys? Without a will that establishes guardianship for your minor children, the court will have to make a decision—a decision you may not have wanted.
Do you want to make sure Aunt Mabel gets the china, Brother Bill gets your stamp collection, and Son Jack gets your golf clubs? A will and a letter of instructions can specify who receives what, so that the heirs aren’t left feuding over the property.
Without an estate plan, not only might the wrong heirs end up with your property, the federal and state government could end up with a good chunk of it. It’s surprising how many wealthy people have inadequate estate plans, with the result that as much as 35 percent of their estate goes to the government.*
Not convinced you have a large enough estate to worry about? Think again. These days, with qualified retirement plans, IRAs, stock options, life insurance, and homes fluctuating in value, more and more families are finding themselves vulnerable to federal and state estate taxes. States are demanding an ever increasing share of a decedent’s estate. Yes, you can pass your property to your spouse tax-free, but that is only postponing the tax bite. The government will collect when he or she dies.
I feel that we put off establishing an estate plan because we’re young and figure we don’t need one yet, because we don’t want to deal with something that involves death, we don’t want to pay the money, we hate working with lawyers, or we just don’t realize the impact of going without one. Without one, however, your heirs could feel the impact of no estate plan.
While I am not a legal or tax advisor, I would be glad to work with you, your accountant, tax advisor, and/or lawyer to help you meet your financial goals. By bringing a team of your trusted advisors together, you can help ensure that your investment plan is aligned with your broader estate plan.