WHAT’S IN YOUR ESTATE PLAN
(OR IS IT YOUR FAILURE TO PLAN)?
By: Sandra L. Clapp, J.D.
Sandra L. Clapp & Associates, P.A.
I’m too busy. I don’t have enough money or assets. If I put anything in writing, I might die. I don’t know who I would trust to manage my assets. There are too many decisions to make. I can’t find my insurance policies or important papers. Everything will automatically pass to my spouse. On and on go the list of reasons I have heard to justify why a will wasn’t prepared before an unexpected death or incapacity. If any of these excuses sound familiar, you are not alone. An AARP study found that over 40% of Americans age 45 and older do not have a will and this number is even greater for adults below 45. Some of the famous people who have died without a will include Presidents Abraham Lincoln and Andrew Johnson, as well as Howard Hughes and Pablo Picasso. Even those who know the importance of a will can be plagued by procrastination or inability to deal with mortality or capacity issues.
The lack of a plan developed by you is, in effect, your selected estate plan. By not consciously engaging in the planning process you have decided to allow your legislators and the court to establish your plan. Every adult with assets or liabilities should have documents that include a will, health care directives, and a power of attorney for asset administration. If you have minor children or own a business, this need for a comprehensive plan is even greater.
This is the first of a series of articles intended to demystify the “estate plan.” We will cover topics that provide practical information that may include asset titling, community property implications, probate, estate or inheritance taxes, identifying fiduciaries (the people who carry out the tasks), trusts, organization of files or information, business succession planning, alternatives to using a lawyer, planning for multiple marriages, challenges of multi-state assets, incapacity planning, and modifying the documents once they are signed. A comprehensive and properly executed plan can prevent significant strain on your heirs, can substantially minimize the legal and accounting expenses for the estate administration, can maximize the value of your business interests, and can ensure your desires (not some law) are implemented. An estate plan really is about protecting your heirs. You plan for college, career and retirement. Your estate plan deserves just as much attention. Your family and business associates will appreciate your time and foresight now to prevent disputes and expense in the future.
You may ask “why do I need a will?” A will enables you to
- Appoint a personal representative (other states use the term executor or administrator),
- Name a guardian for minor children,
- Choose beneficiaries of your estate and the property each will receive,
- Establish trusts for minor or incapacitated beneficiaries,
- Minimize estate or income taxes,
- Provide for orderly continuance or sale of a business,
- Make charitable gifts, and
- Disinherit persons who may inherit without a will. If you die without a will, the laws of intestacy of the state where you reside will control who receives your property. There is no “entitlement” to an inheritance unless the laws of intestacy grant this right where the decedent failed to plan.
It is sometimes incorrectly assumed that a spouse will automatically inherit all assets of the estate. In Idaho, a spouse may inherit all of the community property under the current intestacy laws, but may be required to share separate property assets with the decedent’s children. Because the inheritance rights differ, a probate dispute may develop over the character of the assets in the estate as separate property or community property because the distribution will vary among the spouse and children depending upon the asset character. Without a marital agreement, the presumptions of Idaho law favor community property and the Idaho law may differ from other community property states. One significant distinction between Idaho and some other community property states is that in Idaho income from separate property is deemed community property, whereas the income from separate property would also be characterized as separate property in other states. This sometimes unexpected implication of the community property laws can alone wreck havoc on the ultimate distribution of assets. If you have no spouse, children or “issue” (meaning lineal descendents), more remote persons will inherit under the laws of intestacy and may include parents, siblings, nieces and nephews. Without a will, all heirs of the identified class are entitled to inherit regardless of whether the decedent had any contact with the person or would have disinherited the person if given the chance.
Next month the article will focus on “non-probate” transfers (assets that transfer by title or beneficiary designation) and explain the probate process.