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Why Do I Need an Estate Plan? Part 1

by | Oct 9, 2023 | Estate Planning

This on-going blog series talks about why you might need an estate plan.  “Estate plan” may seem like a vague phrase, but it is simply a set of legal documents that help you throughout your lifetime and after you pass.  Power of Attorney documents enable you to appoint who will take care of your medical and financial decisions when you are incapacitated.  Wills and Trust documents enable you to specify who will receive your assets when you are gone.  Both wills and trusts are flexible, powerful documents that can specify what happens to your assets in greater detail than beneficiary designations.

In this ongoing series I will discuss a few common reasons you might benefit from having an estate plan.

REASON ONE:  You Don’t Want State Law Determining Who Gets Your Assets

Many people are under the impression that if they don’t have a will, the state may take their assets.  In fact, this rarely happens.  Laws are in place to determine which relatives do inherit a person’s assets if that person dies without an estate plan, and in most cases there will be some surviving relative to receive the inheritance.

What people don’t realize is that state law about inheritances don’t always follow what one might assume is common sense.  One reason it is important to have an estate plan is to avoid unwanted outcomes with your assets after your death.

State laws only come into a play if a person does not have a will or trust in place.  Such a person is said to have an intestate estate.  (Intestate simply means “without a will”.)   Intestate laws typically ensure that some living person or persons will receive your assets (rather than the state itself) but they don’t guarantee that the people you want to inherit your assets will do so.

For instance, if you are married, you might assume that your spouse will automatically inherit all your assets when you die, even if you don’t have a will.  This is not always the case, however.   If you have surviving children,, your spouse only inherits a portion of your assets, leaving the rest to your children.  In this case, if one or more of your children are minors and they inherit a substantial sum from you, it may be necessary to establish a guardianship for them due to state law limiting the amount a minor can inherit directly.  (This requirement remains in place even if the minor has a surviving parent.) Establishing a Guardianship can be avoided with certain provisions included in your Estate Plan.

If your spouse is a second, or subsequent spouse and you did not have children together, that spouse’s share of your intestate estate may be smaller still.

If there are no children, but a parent (or parents) of the deceased survived, the spouse receives three-quarters of the estate, with the deceased person’s surviving parent or parents receiving the rest. This could be an issue if your parent is enrolled in Medicaid or other means-tested benefits, as it might disqualify them from such.

There are many other circumstances where state law will lead to unwanted outcomes when your assets are distributed.  You may have a stepchild you consider part of the family, for instance, but by intestate law that stepchild will inherit nothing (unless you legally adopted him or her).  Or there may be an adult child that due to psychological or other issues is not capable of handling money.  That person will inherit regardless if the state determines he or she is your heir and no will or trust exists.

Having a good estate plan in place will ensure that state laws covering intestate estates never come into play and that the proper persons will inherit your assets. Give us a call at 765-364-1111 to discuss the best options for your estate plan!