Because you care about what happens to your money, home and other property after you die, you need to do some estate planning. Even if you're young or your estate is modest, you should always have a legally valid and up-to-date Will. This is especially important if you have minor children because, in many states, your Will is the only legal way you can name a guardian for them.
What is the purpose of a Will?
Wills avoid intestacy
If you die without a Will, then you die “intestate.” Any property that is titled in your sole name (assets without a beneficiary designation, assets not in a trust, or assets that are not in joint names) will be divided according to state law. In general terms, your property will be distributed to your spouse, if any, and descendants, if any, in proportions dictated by state intestate succession laws; if you have no spouse or descendants, then assets would pass to your parents, siblings and more remote relatives. This may not be what you would have wanted. Utilizing a Will to dictate how you want your property to be distributed is important.
You can achieve the same tax benefits and asset disposition with either a Will or a trust. Some things that can only be accomplished by using a Will.
Wills distribute property according to your wishes
Wills allow you to leave bequests (gifts) to anyone you want. There are some limits, however, on how you can distribute your property using a Will. For instance, your spouse may have certain rights with respect to your property, regardless of the provisions of your Will.
Gifts through your Will take the form of specific bequests (e.g., an heirloom, jewelry, furniture or cash), general bequests (e.g., a percentage of your property), or a residuary bequest of what's left after your other gifts.
Wills allow you to nominate a guardian for your minor children
In many states, a Will is the only means of stating who you want to act as legal guardian for your minor children if you die. You can name a personal guardian—who takes personal custody of the children—and a property guardian—who manages the children's assets. This can be the same person or different people. The probate court has final approval, but courts will usually approve your choice of guardian.
Wills allow you to nominate an executor
A Will allows you to designate a person as your executor to act as your legal representative after your death. An executor carries out many estate settlement tasks, including locating your Will, collecting your assets, paying legitimate creditor claims, paying any taxes owed by your estate and distributing any remaining assets to your beneficiaries. Like naming a guardian, the probate court has final approval but will usually approve your nomination.
Wills specify how to pay estate taxes and other expenses
The way in which estate taxes and other expenses are divided among your heirs is generally determined by state law unless you direct otherwise in your Will. To ensure that the specific bequests you make to your beneficiaries are not reduced by taxes and other expenses, you can provide in your Will that these costs be paid from your residuary estate—or you can specify which assets should be used or sold to pay these costs.
Wills can create a testamentary trust
You can create a trust in your Will, known as a testamentary trust, that comes into being when your Will is probated. Your Will sets out the terms of the trust, such as who the trustee is, who the beneficiaries are, how the trust is funded, how the distributions should be made and when the trust terminates. This can be especially important if you have a spouse or minor children who are unable to manage assets or property themselves.
Wills can fund a living trust
A living trust is a trust that you create during your lifetime. If you have a living trust, your Will can transfer any assets that were not transferred to the trust while you were alive. This is known as a pour-over Will because the Will "pours over" your estate to your living trust.
Wills can help minimize taxes
Your Will gives you the chance to minimize taxes and other costs. For instance, if you draft a Will that leaves your entire estate to your U.S. citizen spouse, none of your property will be taxable when you die (if your spouse survives you) because it is fully deductible under the unlimited marital deduction. If, however, your estate is distributed according to intestacy rules, a portion of the property may be subject to estate taxes if it is distributed to heirs other than your U.S. citizen spouse.
Other things to keep in mind
Assets disposed of through a Will are subject to probate. Probate is the court-supervised process of administering and proving a Will. Owning property in more than one state can result in multiple probate proceedings, which is known as ancillary probate.
Some assets may not follow the directions articulated in a Will, because they will flow by operation of law (e.g., jointly owned assets go to the other owner), by operation of contract (e.g., beneficiaries of life insurance, Individual Retirement Accounts (IRAs) or Transfer on Death (TOD)) or by trust.
Will provisions can be challenged in court. Although it doesn't happen often, the validity of your Will can be challenged and often occurs because of an unhappy beneficiary or a disinherited heir.
Although a Will doesn't have to be drafted by an attorney to be valid, seeking an attorney's help can ensure that your Will accomplishes what you intend.
The financial experts at Busey Wealth Management can help you plan for the future with tailored solutions to fit your individual needs. To learn more, visit busey.com/wealth-management.
This is not intended to provide legal, tax or accounting advice. Any statement contained in this communication concerning U.S. tax matters is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties imposed on the relevant taxpayer. Clients should obtain their own independent tax advice based on their particular circumstances.
This material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities.
This presentation is for general information purposes only. It does not take into account the particular investment objectives, restrictions, tax and financial situation or other needs of any specific client.
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