Five Often Overlooked Reasons Why You Need a Will
Most people fail to appreciate the full importance of a will, especially if they feel their estate is too small to justify the time and expense of preparing one. And even people who recognize the need for a will often don't have one, perhaps due to procrastination or a disinclination to broach the subject of mortality with loved ones.
Here are five basic reasons why you should have a will:
Reason
1: To Choose Beneficiaries
The intestate succession laws of the state in which you live determine how your property
will be distributed if you die without a valid will. For example, in most states the
property of a married person with children who dies intestate (i.e., without a will)
generally will be distributed one-third to the spouse and two-thirds to the children,
while the property of an unmarried, childless person who dies intestate generally will be
distributed to his or her parents (or siblings, if the parents are deceased). These
distributions may be contrary to what you want. In effect, by not having a will, you are
allowing the state to choose your beneficiaries. Further, a will allows you to specify not
only who will receive the property, but how much each beneficiary will receive.
Note: If you wish to leave property to a charity, a will may be needed to accomplish this goal.
Reason
2: To Minimize Taxes
Many people feel they do not need a will because their taxable estate does not exceed the
amount allowed to pass free of federal estate tax (for those dying in 2000, this amount is
$675,000 plus whatever goes to a surviving spouse or charity). However, your taxable
estate may be larger than you think.
For example, life insurance, qualified retirement plan benefits and IRAs typically pass outside of a will or of estate administration). But these assets are still part of your federal estate and can cause your estate to go over the threshold amount. Also, in some states an estate becomes subject to state estate or inheritance taxes at a point well below the $675,000 mark. A properly prepared will is necessary to implement estate tax reduction strategies.
TIP: Changes in the size of your estate may warrant a re-examination of your estate plan.
Reason
3: To Appoint a Guardian
If for no other reason, you should prepare a will to name a guardian for minor children in
the event of your death without a surviving spouse. While naming a guardian does not bind
either the named guardian or the court, it does indicate your wishes, which courts
generally try to accommodate.
Reason
4: To Name an Executor
Without a will, you cannot appoint someone you trust to carry out the administration
of your estate. If you do not specifically name an executor in a will, a court will
appoint someone to handle your estate, perhaps someone you might not have chosen.
Obviously, there is an advantage, and peace of mind, in selecting an executor you trust.
Reason
5: To Establish Domicile
You may wish to firmly establish domicile (permanent legal residence) in a particular
state, for tax or other reasons. If you move frequently or own homes in more than one
state, each state in which you reside could try to impose death or inheritance taxes at
the time of death, possibly subjecting your estate to multiple probate proceedings. To
lessen the risk of this, you should execute a will that clearly indicates your intended
state of domicile.
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- This article is excerpted from the CPA Bulletin that is prepared monthly by the staff of the AICPA for the clients of its members. This article does not have any official authority and the information therein should not be acted upon without professional advice. Copyright ã 2002,2003, American Institute of Certified Public Accountants, Inc., Harborside Financial Center, 201 Plaza Three, Jersey City, NJ 07311-3881
- ã 2003 David J. Driscoll & Company