Many people love to spend their summers at the beach, but experienced beachgoers know that unseen dangers can lie behind the joys of the sun and sand. For example, the undertow is a powerful water current below the surface that moves away from shore as the waves approach. The undertow can knock a person off balance and can be dangerous even for strong swimmers. So we learn to take steps to protect family members from this danger. Likewise, there are dangers associated with failing to create a strong estate plan that could make your family members feel helpless after you pass away.
If you have no plan, state law will determine who gets your money and property. If you pass away without a valid will and/or trust, your property will go to the individuals listed in your state’s intestacy law in the proportions determined by the law. In effect, the state makes a will for you if you fail to do so. If this does not seem like a serious concern, consider the consequences: Some of your loved ones, including your children, could be disinherited.
Here’s how your loved ones could be disinherited if you do not have a will or trust naming them as beneficiaries:
- Children from a first marriage who have been adopted by a stepparent, or children who have been adopted by someone else, may not be recognized as your children under state law. As a result, they will receive nothing from you unless you specifically include them in your will or trust.
- Children conceived after one parent’s death using assisted reproductive technology, such as frozen embryos, may not inherit from that parent; state laws don’t always address the rights of posthumously conceived children.
- Although children of unmarried parents can always inherit from their mothers under state law, they may have to produce proof of paternity to inherit from their father.
- A significant other with whom you have spent your life is unlikely to receive anything under state law if you are not married. Although state law does allow a spouse to receive some proportion of your estate, if you are not legally married to your partner, or in a legally recognized civil union or registered domestic partnership, he or she will inherit nothing from you.
Among other complexities of intestacy law, a special needs child may need a larger inheritance amount to pay for future care than an adult child who is not disabled. Intestacy statutes provide no exceptions for these special circumstances.
Make sure everyone you care about benefits from your estate by naming them and specifying the gifts you want them to receive in your will or trust.
An outright gift under state law will not protect your heirs’ inheritance. Outright gifts made pursuant to an intestacy statute provide no protection for your spouse or children; once they receive a distribution from your estate, that money may be drawn away by creditors or ex-spouses who can reach it to satisfy their claims. In addition, if your children are irresponsible with money, they could quickly squander the money and property you have worked hard to save. You can address these problems by creating certain types of trusts. Two of the most commonly used trusts are those that distribute money and property in certain percentages at specific ages and discretionary trusts.
Creating a trust with distributions at specific ages will distribute funds to your beneficiaries when they are old enough to handle the responsibility. Also, because the gifts are made in increments, your beneficiaries will not be able to quickly exhaust their entire inheritance. The money and property held by the trust will be protected from creditors until it is distributed to your beneficiaries.
The trustee of a discretionary trust has the authority to make distributions to beneficiaries but is not required to make them. Because the beneficiaries do not have a right or entitlement to receive any of the funds in the trust, the money and property held by the trust are protected from their creditors until a distribution is made. Your trustee should be someone you trust to make wise decisions regarding when and if distributions should be made.
Failing to create a trust means that your estate will be tied up in a lengthy court-supervised probate process. Instead of being immediately available to provide for your family members, your money will go through the probate process, which could last up to a year or two even if your estate is not complex. This is true even if you have a will, as probate can only be avoided if you die with no accounts or property in your name. A will guarantees probate (as does having no will at all – dying intestate)! Typically, this is accomplished by transferring all of your money and property into a trust or naming a beneficiary for your accounts and other eligible property.
In addition, if you have minor children, money or property that they inherit under state law or a will cannot be immediately distributed to them. Because minor children are not legally able to control property, unless you have named someone you have chosen to fill this role in your will, a conservator will need to be appointed by the court to manage the inheritance for them until they reach the age of majority under state law, at which point it will be distributed to them outright – a double whammy! Locating and appointing an appropriate person is a time-consuming process for the court. Further, the money and property you want to be used to care for your children will not be available to benefit them until the process concludes. Lastly, while the conservator will be supervised by the court, there is no guarantee that the court-appointed individual will use the money to benefit your children in the way you would have wanted.
Care for Your Family; Allow us to Help
Losing a family member is never easy, but we can help you create a plan that will assure you that your grieving family will not be overwhelmed if you die. Contact us today to set up an appointment; We’ll talk about the best estate plan for your family and loved ones. We are also happy to meet with you over the phone or by videoconference.