Common sense applies: Just because I post this, and you read does not make me your
attorney. Nor does it make you my client. Every situation is unique, and you should
always consult an attorney when creating legal documents.
In our prior discussion we organized assets into three columns in order to do some basic
planning analysis. Those columns are: Jointly Owned, Designated Beneficiary, and
Individually Owned.
If you pass, the Jointly Owned assets pass to the surviving joint owner or owners, and
the Designated Beneficiaries assets are distributed to the beneficiaries as you named
them.
The Individually Owned assets are not so easy. Those assets will pass to new owners,
either owners selected by you, or owners selected by the laws of the state where you
reside.
Will the new owners be those beneficiaries you select?
You select the new owners by creating a Last Will and Testament or a Trust. That is the
heart of your estate planning. Properly designed and written, a Will or Trust (or even
both together) will distribute your assets to the persons or institutions you desire, and
upon the terms and conditions that you dictate. There are some limitations as to what
you can do but, generally speaking, your plan can be implemented.
Conversely, if you die with no plan in place, you are legally an intestate decedent,
meaning you died without a Will (or Trust). Because you did not provide a Will for yourself,
the State of Indiana has written one for you. You will find it in the Indiana Code under
the title of Intestate Succession. Every state has a similar statutory provision, but the
actual division and distribution of assets varies from state to state.
Who gets your assets if you die without a will?
There still persists a fear, primarily among the elderly, that dying without a Will means
the state will receive your assets. Guess what? This could actually be true. But it is very
unlikely. The Intestate Succession statutes of Indiana provide primarily for division and
distribution to family but an absence of family would mean the assets pass to the state.
It is extremely rare, so you should not fear the state receiving your estate.
However, the state will control who does receive your estate. Remember, if you do not
make a plan then the state’s plan is your plan. Since you did not provide for thoughtful
and strategic distribution of your assets, the state will hand them to your children on
their 18th birthday. Since you did not consider planning to reduce or eliminate fees,
everything in your estate will incur the costs of probate administration.
What can make the situation worse for beneficiaries?
This impact is difficult for families, but it can be devastating for blended families –
especially a second spouse with whom you have no children. Such “childless second or subsequent spouse” will receive only one-half of the estate. This result can be a disaster
for couples with meager assets. I personally have seen one widow lose her home by just
such a result.
Thus, when you consider your Individually Owned assets, it is imperative that you plan
for your estate. There are three broad categories of planning available.
How to make plans that will serve you and your heirs
First, you can “move” the assets to another column, either Jointly Owned or Designated Beneficiary. Recent changes in the laws of Indiana allow almost all property to have a Designated Beneficiary when you die. This may not be the right solution for every asset or every heir, but it is a useful option for planning.
Second, you can choose to write a Last Will and Testament. This is merely a set of
instructions that will be followed after you pass on to distribute your Individually Owned
assets.
Third, you can choose to write a Trust. This is also a set of instructions, but it will be
followed while you are alive, and then continued after you pass on. There are many
types of Trusts so you will need to consider your situation and get professional advice as
to which Trust will work for your planning needs and goals.
In our next post we will look closely at the difference between Wills and Trusts. Until then, don’t hesitate to contact me with questions or concerns you might have regarding estate planning.
Troy