Having a will is very important. Not only does it protect your spouse, children and assets but it allows you some opportunity to dictate how your assets are handled from the grave. A will is a legally binding document that allows you to guide how your estate/assets will be distributed upon your death. If you die without a will (intestacy—the process of distributing assets following a death without a will), state law determines how your assets will be distributed. A will is one of the few ways to have a voice as to who gets what after you’re gone.
One very important reason to have a will is it will allows you to make an informed decision about who should take care of minor children and who should manage their assets. Minor children generally cannot inherit money or assets outright. A custodian is named or appointed to manage the inherited assets until the child reaches an age of majority (usually 18). A guardian is in charge of managing the child’s day-to-day physical and financial wellbeing. The guardian and custodian may be the same person or separate people. Absent a will, the court will select a guardian and custodian in accordance with state law. Generally, courts prefer a chosen guardian to have ties to the child, such as a relative, a person chosen by the child or a state employee or private person familiar with the child. With a will, you can select who you want to raise you children and manage their assets.
A will can also allow you to make gifts and donations that reflect your personal values and interests and allow your legacy to live on. Often different states require specific language in a will in order for the executor to be allowed to carry out certain duties. Thus it is advisable to speak with a knowledge estate attorney to make sure that the specific language that needs to be is included in the will.
Having a will allows you to minimize estate taxes for your heirs. For larger estates, Congress addresses estate tax issues (see Death Tax), but the value of what you give away to family members or charity will reduce the value of your estate. Proper estate planning through a well drafted and executed will should help to minimize any inheritance taxes on your intended beneficiaries.
Funeral instruction should not be contained in will. For practical purposes, funeral arrangements are among the first matters of business after someone dies. Since the settling of an estate is usually done after the funeral, people may not even notice your funeral wishes if they are stated in your will.
Probate
Probate is the legal process by which the will, if there is one, is validated by the court and accepted as a public document. If there is a will, the probate process will make sure the assets are distributed to the beneficiaries or heirs through an executor named in the will. Think of the executor as the business manager of the deceased. Without a will, the assets will be distributed according to state law by a court-appointed administrator. This court is usually called a Probate Court and sometimes called a Surrogate Court or Orphans’ Court. The court’s objective is to ensure that the deceased’s debts, taxes and any other valid claims are paid out of their estate before any distribution is made to the estate’s beneficiaries. This distribution will be in accordance with the will if there is one, or on the orders of the court if there is no will.
If a will is present, the first step in the legal process of disbursing an estate’s assets is the granting of probate. Probate provides a means for resolving all outstanding claims against the deceased person’s assets, and distributing those assets under the direction of the will. A probate court decides the legal validity of a deceased person’s will and grants its approval, also known as granting probate, to the executor (or personal representative). The probated will then becomes a legal instrument that allows the executor to act as a business agent—collecting rents, outstanding balances due and settling debts on behalf of the deceased.
The executor is usually specifically named in the will as dictated by state law but is generally approved by the probate court as part of the process of opening the estate. From the court’s perspective, the purpose for leaving an estate open is to give all interested parties an opportunity to file claims against the assets of the estate in other words- to pay your bills before the excess assets are distributed to the beneficiaries. An estate is deemed closed when the executor can demonstrate to the court that all reasonable creditors have been identified and satisfied in accordance with state law. Most states stipulate a minimum amount of time that an estate must remain open giving creditors time to respond.
Is probate always required? Different states have different laws concerning probate and whether probate is required after a death. Often, whether probate is required depends on the value of the estate. If the estate is below a certain asset value, probate may be skipped. It is always wise to check with an attorney as part of the planning process to determine if probate can by bypassed. Generally, if the assets have a separate designated beneficiary specification as is usually the case with and IRA account for example, the asset can pass directly to the beneficiary without having to go through probate or regardless of the specifications of the will.
Some assets can pass to the heirs without having to go through the probate process depending upon how they are held. For example:
1. Real estate, bank accounts and other assets held in joint tenancy, tenancy by the entirety or community property with rights of survivorship. This type of property grants right of survivorship to your “survivor” automatically by law. Therefore, when you die, the property pass directly to the “survivor”, regardless of what your will says. An example would be a home owned with rights of survivor ship. Then when one of the owners listed on the deed dies, ownership of the home automatically goes to the surviving owner
2. Funds in an IRA, 401(k), or retirement plan where a beneficiary is explicitly named. The forms completed when opening this account for these plans generally contain a section for to include your designated beneficiaries. These assets tend to pass to the beneficiaries regardless of the specifications of the will. As a result, it is a good idea to review the named beneficiaries in your retirement accounts to be sure the beneficiaries are those that you might intend rather than an ex-spouse.
3. Life insurance proceeds that have a beneficiary designated. Proceeds automatically go to the beneficiary. The listed beneficiary can be designated as the estate itself. It is also important to be sure you know who the beneficiaries of these insurance products are.
4. Property held in a living trust. Property in a living trust can usually avoid probate, whereas property in your will usually does not. The property in the living trust generally automatically goes to the beneficiaries of that trust in accordance with the terms of that trust and is managed by the trustee in accordance with those terms. If you want to change the “survivor”, you must usually do it by changing the terms of the trust, not through the will.
5. Stocks or other securities or assets held in a transfer-on-death (TOD) account.
6. Real estate or vehicles held with a transfer-on-death (TOD) deed or title document.
7. Funds held in a payable-on-death (POD) bank account. The form for this type account asks for a beneficiary when the account is set up. Changing the beneficiary is done directly with the financial institution that holds the account.
Intestate
Without a will, the distribution of assets following a death is generally determined by the state law where the deceased resided. This process is called “intestate succession” or “intestacy.” An intestate estate also can occur when the will presented to the court is deemed invalid. In intestacy, the probate court begins the process by appointing an administrator to oversee the estate of the deceased. The administrator functions like an executor, receiving all legal claims against the estate and paying off the outstanding debts of the deceased. The administrator also will need to find the legal heirs of the deceased. The probate court will decide what assets need to be distributed among the legal heirs and how to distribute them.
Usually, state law determines what happens to property when someone dies without a valid will, and if the property was not directed to beneficiaries in some other way, such as those stated above. Generally speaking, only spouses, registered domestic partners and legal children (a child born to you or adopted by you) inherit under intestate succession laws but state laws do vary. If you do not leave behind a spouse or children, state laws generally leave your assets to other relatives in this order of priority: your grandchildren, your parents, and your siblings. Unmarried partners, stepchildren, friends and charities often get nothing. In the rare event that no relatives are found, the state can often take the assets itself following a specified procedure that exhausts all other efforts.
Conclusion
Because of the cost of court involvement in the probate process and the potential involvement of lawyers and other professionals who collect fees from the estate of the deceased, many people try to minimize costs of the probate process. This can be done successfully through planning and the first step is drafting a good will. There are tremendous legal and tax complexities in the process of distributing assets of the deceased. Thus, it is advisable to have a will and speak with a knowledgeable estate attorney and financial professional: this will ensure that your loved ones are not left unraveling something exceedingly expensive, complex and just plain difficult after you are gone. Also, on a yearly basis, you should check the beneficiaries of all assets, especially the assets that pass outside of a will. You should review your will with your attorney every few years to be sure it complies with changing state laws.
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Sources:
https://www.nolo.com/legal-encyclopedia/how-estate-settled-if-theres-32442.html
http://www.investopedia.com/terms/p/probate.asp
https://www.legalzoom.com/articles/intestate-succession-what-happens-when-you-die-without-a-will
http://estate.findlaw.com/wills/top-ten-reasons-to-have-a-will.html
https://www.lawyers.com/legal-info/trusts-estates/wills-probate/why-is-a-will-important.html
https://www.legalzoom.com/knowledge/last-will/topic/importance-of-wills
http://family.findlaw.com/guardianship/guardianship-of-minors.html