“Dad, what happens to your guitars when you die?”
My daughter has a habit of asking jarring questions like these, especially when she can’t get over the urge, inscribed in our house rules, not to bother me in my office during work hours, unless it’s an emergency.
That is almost always. The first time she asked that question, she didn’t have a ready answer. After all, it’s hard to explain the concept of “succession” to a 7-year-old.
But now I have an answer for her… one so simple that even a child can understand it.
The testamentary hole
Probate is the mandatory legal process when a person dies. He will inventory your assets, make sure all your debts are paid off, and distribute the rest to the heirs named in your will.
However, if you did not leave a will, each state has its own rules that define who is entitled to receive your property and how much. This “intestate” probate process can be lengthy, during which time your heirs have nothing, sometimes not even access to your life insurance proceeds. Most states have minimum periods in which creditors can respond, during which your estate cannot be distributed.
Succession is also expensive. There are attorney fees, executor fees, court filing fees, and other costs. Many states set these fees as a percentage of the value of your estate. Others allow lawyers to charge an hourly rate, subject to court approval of their “reasonableness.” That can spell big trouble if the probate judge is a golf partner of his parents’ lawyer.
Do you need a will?
You’ve probably heard that musician Prince recently died intestate. Many people don’t think he forgot to write a will, especially since the bulk of his estate is the publishing rights to his music, valued at around $300 million.
Prince’s reluctance probably had something to do with his almost irrational distaste for contracts, even a will, which is basically a contract with your deceased future self. But Prince was part of the 55% of Americans who die without a will.
In some cases, that makes economic sense. If you have little to leave behind, a will could cost more than a probate. If you don’t have instructions for your remains or messages to deliver to your heirs (another function of a will), then perhaps you can do without them.
On the other hand, anyone smart enough to sign up probably needs a will. That’s because it’s not just the size of your heritage that matters… it’s also what’s in it that’s critical.
If you have more than a bank account, a house, and a few personal possessions, a will is essential to ensure some control over how those assets are handled after you’re gone. For example, if you own a business and your heirs can’t agree on whether to keep it in business or collect, a probate judge can order it sold for division according to state law.
In my case, ownership of property in more than one country, multiple investments, and a collection of valuable musical instruments make a will a no-brainer.
Is a will enough?
Here’s a simple rule of thumb: if the value of your estate and that of your spouse is greater than the combined gift/inheritance tax exemption (currently $10.86 million ($5.43 million x 2), then you need more than a will. In that case, you should take some of your assets out of your estate… but 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 estate. Many people are surprised to discover that their parents’ insurance, investments, property and other assets put them in estate tax territory…which is expensive and complicated.
If you have long-term investments with unrealized capital gains, for example, at the time of your death, the appreciation of those investments from the date of purchase will be considered income for estate tax purposes, even if it is not recognized. they really liquidate That 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 would benefit from an irrevocable trust to receive certain assets (either before or at your death). Those assets are excluded from the calculation of your estate. Such a trust could even be the beneficiary of your life insurance policy, also keeping it out of your estate…and out of probate, since the trust assets are not yours.
Prosperity in the Hereafter
Some people rely on faith to fulfill their wishes for the future. I’m not one of them. Faith always has a part to play, but when it comes to your heirs, nothing beats a good old-fashioned contract with yourself: a will.
After all, we don’t know the day or the hour…
