What Good is a Will, Anyway?

When I tell people that I do estate planning, the natural follow-up question is, "Oh, is that like writing wills?" Many people have that vague idea that estate planning means wills, but very few people know exactly what a will can do. Oh, everybody knows the basics: a will tells your kids what to do with your stuff when you die. But a will does much more than that. Here's a few things you can do with your will.

1. Give to charity. If you decide to create a will, you have taken control over who will inherit your stuff. You can give money to whomever you wish in your will. Without a will, your property follows a predefined chain of family members with the potential that the state becomes the recipient of the inheritance you left behind. Since you get full control over who inherits in your will, you can choose a charity or charities to distribute assets to. You might give money to your alma mater or to your local high school or church. You might donate to the Red Cross or the Luke Society. The options are as many as the number of non-profit organizations.
2. Set up a trust. A testamentary trust is created within your will and therefore goes into effect after you die. You can place some or all of your property into a testamentary trust and can use the trust to protect assets from the creditors or estranged spouses of your children. A trust is also effective to protect the inheritance of a minor child or an heir with special needs who probably should not receive a large amount of money or property outright. You can appoint a trustee and set conditions on distributions just like in any other trust.
3. Appoint a Guardian. Along with creating a trust to protect your young kids' inheritance, you can also appoint the individual(s) who you want to care for your kids if you should pass away before they turn 18. You can decide who should take over if your first choice can't or won't act as guardian(s).
4. Appoint an Executor. In your will, it is always a good idea to choose who you want to manage the distribution of your property after your death. If you don't choose someone, the court system will have to choose one for you. In addition, you can waive the requirement that your executor be bonded (which is kind of like insurance against the executor's bad actions); this might not be waived if you don't choose to appoint someone, so it's a good idea to make sure a waiver is included if you don't want your executor to have to spend the money. Finally, you can approve or set an amount which will be paid to your executor as compensation for managing your estate during the probate process.
5. Personal Property Memorandum. A personal property memorandum clause in your will allows you to specify who will receive certain specific pieces of tangible personal property in a separate document from the will itself. The separate document can be revised or eliminated without having to change your will or create a new will. This memorandum only covers tangible property; land and cash, stocks, or other intangible personal property cannot be given away by using this document.

As you can see, a will is much more than a list of your heirs and instructions about who should get what. Along with these common terms, you can give your executor, trustee, and guardian specific powers. You can disinherit a child. You can take special steps to try to avoid estate taxes.

Without a will, you get no options. The law pre-determines how your estate passes. Isn't the alternative a better choice?

Oldest vs. Youngest - The Measuring Life

So, you've decided to delay the age at which your kids will receive their inheritance. For today, let's assume you want your children to inherit at age 25. Your estate planner puts your decision into your will and you put it out of your mind. Over the next five years, you begin to accumulate weath. You start an IRA or three and start an investment account with a financial advisor. One day your financial advisor asks if you have considered life insurance as part of you financial plan. You decide life insurance would be a strong addition and take the plunge. You make your testamentary trust the beneficiary of the policy and put that out of mind as well.

Now, assume you die before all of your children reach the age of 25. Your oldest two children are 27 and 25, so they are not beneficiaries of your testamentary trust, receiving their inheritance outright instead. Your youngest child is 21 and is therefore a beneficiary of the testamentary trust. Your life insurance pays $500,000 to that testamentary trust. Do you see the problem? The youngest child is, effectively, the only beneficiary of the life insurance policy because he is the only beneficiary of the testamentary trust. Since your older kids were above the age you set, they were never beneficiaries of the trust and have no claim to the insurance proceeds. They have been disinherited to the tune of $166,666.66 each.

How do we fix this situation? One effective way is to begin distributing your children's shares of your estate when the youngest child reaches the age of 25. This way, your older children remain beneficiaries past the age of 25. This minor inconvenience is easily justified in the situation described above; it ensures an additional $166,666.66 for the two older kids. Who could complain about that?

(Take note, though, that there are other ways around the problem. Stong drafting can allow you to make distributions to your children as they reach 25. The point is to make sure you don't end up disinheriting your kids through careless drafting.)

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Lawyer Joke of the Day:

Q: When a lawyer dies in the desert, why don't vultures eat his body?
A: Professional courtesy.

A Free, Pre-fab Estate Plan...But Do You Want It?

"Give a man a free hand, and he’ll run it all over you.”

- Mae West

Lawyers often quote statistics about the number of people who die without an estate plan. Every statistic they quote you is false. That’s right. False. Even if you never write a will, you are guaranteed to have a free, no-hassles, pre-fab estate plan at your death. This basic estate plan is created for you by state law and dictates how your property passes if you choose not to appoint your heirs. We all know the best things in life are free, but what about at death?

Married People: If you die without a will in Iowa, your spouse gets everything, the whole kit and caboodle. If you and your spouse have kids, your spouse still gets the whole works. If you have children from outside your marriage, the rules are a bit more complicated. Your spouse gets either $50,000 or one-half of the total estate (generally speaking). If you have less than $50,000 total when you die, your spouse gets everything.

Unmarried People: The rules get even more complicated for people who are single when they die:

1. First, your estate goes to your kids or grandkids.
2. If you have no kids or your kids died without giving you grandkids, your estate goes to your parents. If one of your parents is dead, your other parent gets your whole estate.
3. If 1 & 2 don’t apply, half of your estate goes to your mother’s children and half goes to your father’s children. Your half siblings get the same share as your full siblings.
4. If you have no half-siblings and no full-siblings living when you die, then your estate passes to your grandparents. If your grandparents have died before you, your estate gets divided up amongst their children as follows:
   • Maternal grandmother’s children get one-fourth
   • Maternal grandfather’s children get one-fourth
   • Paternal grandmother’s children get one-fourth
   • Paternal grandfather’s children get one-fourth
What this means is that your mom’s half-brother could inherit 25% of your estate. Just like under number 3, if your paternal grandfather died without any living children, that one-fourth goes to his wife’s kids. If both of your dad’s parents die, your mom’s parents split the whole estate between them. Finally, if only one grandparent lives longer than you, that grandparent’s children get your whole estate. Even your Betty Boop memorabilia collection.
5. If 1-4 don’t dispose of your estate (i.e. your grandchildren, children, siblings, parents, aunts, uncles, and grandparents all die before you), your great-grandparents and their children get your estate.
6. If all your great-grandparents, great-aunts, great-uncles, grandparents, aunts, uncles, parents, siblings, children, and grandchildren die before you, then your estate goes to your spouse’s kids, including your stepkids.
7. If you have no relatives that live longer than you, the state of Iowa gets your property. This is called “escheat.” Sounds about right, doesn’t it? The state cheats and gets all your stuff?

You’re probably totally lost. What if your half-sister is a surrogate mother for a couple from New York? Could that child inherit your whole estate? What if you donate eggs or semen to a genetic bank? Could the child born as a result of that process inherit from your estate?

Don’t leave it to the Iowa legislature to decide. Prepare a will and preserve your estate for the ones you love.

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Lawyer Joke of the Day:

Two prisoners are talking about their crimes:

George: "I robbed a bank, and they gave me 20 years"
Herman: "Hmm. I killed a man, and I'm here for 3 days"
George: "*WHAT*??? I rob a bank and get 20 years; you kill a man and get 3 days???"
Herman: "Yeah, it was a lawyer."