“Dad, what happens to your guitars when you die?”
My daughter has always been in the habit of asking jarring questions like these, especially when she can’t seem to get over the urgency—which is included in our house rules—not to bother me in my office during office hours, unless it’s an emergency.
This is pretty much permanent. The first time I asked this question I didn’t have an answer ready. After all, the concept of a “will” is difficult to explain to a 7-year-old child.
But I have an answer for it now… an answer so simple that a child can understand it.
Wills pit
Wills are the obligatory legal process upon a person’s death. It makes an inventory of your assets, ensures that all of your debts are settled and distributes the rest to the heirs designated in your will.
However, if you don’t leave a will, each state has its own rules that determine who is entitled to your property, and how much. The probate “intestate” probate process can be lengthy, during which time your heirs don’t own anything – sometimes, they don’t even get the life insurance proceeds. Most states have minimum periods within which creditors are allowed to respond, during which your property cannot be distributed.
Wills are also expensive. There are attorney fees, executor fees, court filing fees, and other costs. Many states set this fee as a percentage of the value of your property. Others allow attorneys to charge an hourly fee, subject to court approval of “reasonableness to do so.” This can cause a major problem if the probate judge is a golf companion for your parent’s attorney.
Do you need a will?
You may have heard that the musician Prince died without a will recently. Many people are suspicious that he neglected to write a will, especially since the bulk of his estate publishes rights to his music valued at about $300 million.
Prince’s reluctance may have had something to do with his irrational hatred of contracts — even a will, which is essentially a contract with your future deceased self. But Prince was part of the 55% of Americans who die without a will.
In some cases, it makes economic sense. If you have little to leave behind, a will may cost more than a will. If you don’t have instructions for getting your remains or letters to your heirs–another role of a probate–you can probably do without them.
On the other hand, anyone smart enough to sign up would probably need a will. This is because not only size It’s your possessions that matters… and what’s inside is crucial.
If you have more than one bank account, a home, and some personal possessions, a will is necessary to ensure some control over how these assets are handled after you are gone. For example, if you own a business and your heirs can’t agree to keep it running or cash it, a probate judge may order its sale so it can be divided according to state law.
In my case, owning real estate in more than one country, various investments, and a collection of valuable musical instruments make the will a no-brainer.
Is the will sufficient?
Here’s a simple rule of thumb: If your and your spouse’s estate is worth more than the combined gift/estate tax exemption — currently $10.86 million ($5.43 million x 2) — you need more than one will. In this case, you need to transfer some of your assets from your possessions…but you can still make them available to your heirs.
For example, the death benefit of a multi-million dollar life insurance policy will be included in the value of your property. Many people are shocked to discover that their parents’ insurance, investments, property, and other assets puts them in real estate tax territory…which is both expensive and complicated.
If you have long-term investments with unrealized capital gains, for example, upon your death, the estimate of those investments from the date of purchase will be considered income for estate tax purposes, even if they are not actually liquidated. It could mean that your heirs have to liquidate something else – say, the family home – to avoid having to sell valuable shares.
In such cases, you will benefit from an irrevocable credit to receive certain assets (either before your death or upon your death). These assets are excluded from your property account. This trust can be the beneficiary of your life insurance policy, and also keep it off your property… and away from probate, because the trust’s assets are not yours.
prosperity in the afterlife
Some people rely on faith to fulfill their desires in the future. I am not one of them. Faith always has a role to play, but when it comes to your heirs, nothing beats the good old contract with yourself – the will.
After all, we know neither the day nor the hour …