Wills and trusts make clear what your intentions are and make sure that your assets are directed to the appropriate parties.
Benjamin Franklin pointed out that nothing is certain but death and taxes. While taxes are frequently discussed, most people prefer not to talk about death. But if you choose not to prepare for the inevitable, you could well jeopardize what you’ve worked for all your life. The scenario for the unprepared is not pretty.
Where there’s no will, there’s no way
Dying without a will means your property will be distributed according to the laws of your state of residence, not necessarily according to what you would have wished. For example, you may have siblings or step-children whom you would like to provide for, but without a will they might not qualify for inheritance under most state laws.
The court would appoint an administrator to manage the property in your estate and make distributions to surviving family members. Your surviving spouse might receive only a portion of your property, regardless of your wishes.
Your children would be treated equally regardless of their needs and would receive property outright, typically at age 18. The court could require that fees be paid by your estate to the administrator, reducing the amount available to your loved ones.
Where the surviving spouse is appointed guardian of the children, the State’s Probate Court will generally require an accounting of how, why and where he/she spent the child’s money.
Other negative consequences of dying without a will might include unnecessary estate taxes as well as not communicating any arrangements you might have wished to make for special family members, friends or charities.
To avoid these unintended consequences, it’s essential to have a will, no matter your age or the size of your estate.
Honoring your Wishes
A will is the first step in an estate plan. It declares the wishes of an individual in the disbursement of his or her estate, providing for the legal distribution of assets.
A properly drafted will enables an individual to select the beneficiaries and provides a line of successive beneficiaries who will inherit the property in the event of the death of the primary beneficiary. It can also help protect property for children by establishing trusts, naming trustees and empowering them to manage the property in the estate and distribute income and assets to the beneficiaries according to your wishes.
A will can help save on estate taxes by creating trusts that can bypass the estate of a surviving spouse or provide bequests to charities, which are generally deductible from the taxable estate. Administrative expenses can also be saved through provisions in the will.
A will also prevents unnecessary emotional burdens on your family by making clear what your intentions are and making sure that your assets are directed to the appropriate parties. You should consult a qualified attorney to discuss your specific situation and the laws of your particular state.
The Role of Trusts
A trust is generally used to provide for a spouse, dependents, charities and others through the naming of a trustee who holds and manages the assets for the benefit of the trust’s beneficiaries. Trusts are often established to minimize taxes in large estates or to provide for heirs who may not be able to handle the responsibilities themselves.
You determine the terms of the trust. For example, a trust can provide for the “sprinkling” of income and/or assets among all children according to changing needs, as decided by the trustee. Distribution of trust assets could also be set aside for the children to be used upon attaining a specific age or fractions of the principal can be distributed at different ages.
A trust can also protect inherited property from the creditors of a beneficiary. Most states have enacted “spendthrift” protection laws that generally prevent a creditor from attacking assets which are held in trust for a beneficiary.
AXA Advisors, LLC does not provide legal or tax advice. Please consult your tax or legal advisor regarding your individual situation.
David Rosell can be reached at (541) 385-8831 or david.rosell@axa-advisors.com. Check out David’s online seminars at www.RosellFinancialGroup.com.
David Rosell offers securities and investment advisory services through AXA Advisors, LLC (NY,NY 212-314-4600), member NASD, SIPC and offers annuity and insurance products through AXA Network, LLC and its subsidiaries. Rosell Financial Group is not owned or operated by AXA Advisors or AXA Network. GE-31560 (03/2005) (Exp.3/07)
