Well first of all, everyone already has an estate plan.
How so? Because if you die without a will, the law predetermines what happens to your unassigned assets (“intestacy laws”). In other words, in all states plus Washington, D.C., if you don’t create an estate plan, the government automatically has one in place for you upon your death. With all due respect to financial planners and insurance agents, we can assume that the orderly distribution of assets at death should be considered a “need” because of the importance placed on it in legislation nationwide.
Why do I need to bother if the state already has a plan for me? You might not like how the state would distribute your assets. If you want to have any control over what ultimately happens to your assets after your death, estate planning is essential. For example, unmarried couples should pay close attention because all intestacy laws disperse assets to relatives by blood or marriage only. A live-in mate would be completely out of luck without some kind of extra planning.
If I pass away, people will certainly be upset, but why should any of this concern me? Most of those unconcerned about estate planning have not yet dealt with the administration of a loved one’s estate, also known as probate. Despite the fact that most states’ probate procedures are becoming much simpler, there are still a significant number of steps necessary to settle an estate.
At the very least, any person with the responsibility of distributing your estate will have to keep accurate records, file inventories with the court, contact all potential beneficiaries, deal with creditors, and file appropriate tax returns. Much of this has to be done by your representative either during working hours or through hiring a professional to do the work. This is a significant burden to say the least.
Yeah, I remember my grandmother’s estate took awhile to get resolved. But again, what if I don’t have anything to leave to anyone? Do you really not have anything? Do you have a retirement plan or a bank account or life insurance through work?
How does it work if I’ve named a beneficiary for those accounts? If it all goes to the beneficiaries, why do I need a will at all? A great deal of your estate, if not all of it, may not go through your will at all. Any property that you own that lists a survivor or beneficiary goes directly to that person. This includes certain jointly-held property, insurance policies, IRAs, retirement accounts, and payable-on-death (“POD”) bank accounts. This is all well and good unless you do not actively change your beneficiaries as life changes occur. Without such changes, much of your estate could go to unintended individuals. However, in practice, most estates have at least some assets that do not automatically go to a beneficiary (such as personal belongings, digital assets, and vehicles). Without a will or trust, those assets would still have to go through probate.
So estate planning is not just about the will or trust? That’s right.
But really, what’s the worst that can happen if I don’t get an estate plan? Without an estate plan, a person is not adequately considering all of the possible consequences of death or incapacity. For example, let’s take the simple case where you have a spouse (S) and one child (C) together. What would you want to happen to your assets (and to C if he or she is a minor) if:
You predeceased S?
S had predeceased you and C was a minor?
S had predeceased you and C is an adult?
You and S died simultaneously?You became incapacitated while S was alive?
You became incapacitated after S died and C was a minor?
You became incapacitated after S died and C is an adult?
You became incapacitated while S is incapacitated and C was a minor?
You became incapacitated while S is incapacitated and C is an adult?
S became incapacitated while you were alive?
S became incapacitated after you died and C was a minor?
S became incapacitated after you died and C is an adult?
S became incapacitated while you are incapacitated and C was a minor?
S became incapacitated while you are incapacitated and C is an adult?
After both you and S died, C was a minor and an unmotivated student?
After both you and S died, C is an adult but is a spendthrift?
After both you and S died, C is an adult and is in a bad marriage?
C predeceased you?
C predeceased you and S?
Either you, S, or C died with a great deal of debt?
This is not even an exhaustive list of issues for you to consider. Additionally, the number of issues and necessary decisions multiply if you add any more family or loved ones into the equation. Plus, who is supposed to make these decisions on your behalf? Is that person going to get all of it right?
Randall A. Denha, J.D, LL.M., is principal and founder of the law firm of Denha & Associates, PLLC with offices in Birmingham, MI and West Bloomfield, MI. He can be reached at (248) 265-4100 or by email at firstname.lastname@example.org