A Thanksgiving Conversation: Death

Disclaimer: This is not legal advice. Please consult an attorney for your wills, trusts, and legal matters.

As we all gather around the table for a wonderful time of thanksgiving and family visiting, we should think about our future, and our family’s future. A great way to help plan your family’s future is by a will and certain devices that will avoid the need to probate your estates. If a person dies intestate (dying without a will), most states require that you receive permission from the court for almost everything you do. If the administrator of the estate needs to sell the property, the administrator needs to file an application with the court and receive the judge’s blessing. In some courts, that may take a very long time. This can get expensive because you have lawyer fees for everything you do, on top of the administration costs. A will gives an executor the freedom to administer the estate without the court’s supervision. If a car needs to be sold, the executor can simply sell it, and it’s none of the judge’s business (and no additional lawyer fees!). In addition, a will allows you to control what property goes to which person, which is important when it comes to land.

What if you do not have many assets? Let’s say you don’t own much property. Perhaps you have a bank account and a car (and you don’t own a house, you rent). Do you need to probate your small estate? Your best option may be to organize everything to bypass probating your estate. Your bank usually allows you to have a Payable-on-Death (POD) option. Depending on the requirements of the bank and local law, by presenting a death certificate, the money in your bank account will simple go to the named beneficiary without having to go through probate. That is much faster and cheaper. Depending on your state’s law, your heir can file an affidavit stating that he or she is an heir and, under state law, is entitled to the car. Upon approval of the affidavit, the heir can receive the car.

However, if you have accumulated a large amount of wealth, a trust effective upon your death, or perhaps even before you pass away, may be a great option. Trusts are flexible and allow you to dictate the terms of your asset distribution (even control the behavior of your children from the grave!). Some may want to create their own trust to take care of themselves. As a person ages, he or she may not trust themselves to remember to pay the bills, or worry they may pay bills twice. Their solution is to create a trust that takes care of all necessary spending, and allows a discretionary amount to be given to them each month or year to spend on Christmas, grandchildren, and any thing fun during retirement. There are many trust options to fit your needs and desires. In addition, a trust allows the assets to avoid the need to probate. The biggest concern for trusts is a trustee. When asking someone to do the job of a trustee, make sure you TRUST that person (and your lawyer will likely refuse to be a trustee). Banks are often times trustees; however, they are expensive. Whether a friend, family member, or professional trustee should hold the position depends on your needs and the amount of assets you have.

Another useful tool is insurance. A traditional way that people have stored their wealth, and even become their own banker, is by “investing” in a dividend-paying whole life insurance from a mutual company. Regardless of the type of life insurance, a named beneficiary is paid directly, avoiding the need to pay the executor or administrator of the estate to allocate the proceeds.

It is very useful to have a will that grants an executor independent freedoms to properly administer an estate. Furthermore, you may want to make sure as many assets as possible avoid probate. Speak with an attorney to formulate a plan for you and your family. Have a discussion this Thanksgiving with your family about who should be an executor of your estate and the trustee of your trust. Don’t wait too late, or else your hard-earned money will go to court costs and lawyer fees, not to mention a huge headache for your heirs. And a very important thing to remember: regularly update your will after you make one! Ask your parents if they have updated their will lately.

 

Learn about economics and support this blog by purchasing Economics in One Lesson: The Shortest and Surest Way to Understand Basic Economics.

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