The Value of a Will
If you search the internet for advice on estate planning, there’s no doubt you will encounter a litany of articles professing the importance of having a will. If you were to ask a lawyer in passing if it’s important to have a will, you would surely get the most common answer lawyers tend to give to almost any legal inquiry: it depends. I think the most reasonable answer would be, maybe, maybe not, but it sure doesn’t hurt. The real challenge in answering the question of whether it’s worth the time and expense of having a will drafted requires at least a basic understanding about probate in general.
WHAT IS PROBATE?
When most people talk about probate, they’re really referring to the administration of an estate, since probate is actually an area of law that encompasses things such as guardianships, but whatever you want to call the act dealing with a decedent’s estate in court, the important part is understanding what the law is attempting to accomplish. The aim of probate (i.e an administration of estate proceeding), is twofold; determining who gets the property and resolving the debts of the decedent. Most people understand the first aim but fail to consider that folks like Capitol One and other creditors still want their due.
WHERE DOES THE PROPERTY GO?
Obviously, there needs to be laws that say who is going to end up with the property of a decedent. Will or no will, the law provides rules on distributing property, and for some, the results might be the same.
Administering the estate of a decedent without a will relies on the laws of intestacy. You can think of these laws as the default settings under the law that dictate who will inherit the property, whereas a will allows you to customize how the distributions will be made and to whom. Whether the end result is any different will vary depending on a number of circumstances, which is the first reason that some people are understandably apathetic about having a will drawn up.
Although a more thorough explanation is required, and you should always seek the advice of a professional before making any decisions about your legal affairs, the general gist of the laws of intestacy is what you would likely expect. Without a will, the person’s surviving spouse is the first in line to inherit—*terms and conditions apply. If there is no surviving spouse, then things descend to the children, then the children’s children, and so forth and so on. If a child has died before the decedent, their children will inherit an equal share of what their parents share would have been, which is called per stirpes—there are other jurisdictions that may use an alternative method of distribution known as per capita.
Notice here how the son or daughter in law are cut out of the equation. If there are no children (i.e. lineal descendants) the distribution makes it’s way back up to the parents, then grandparents, while finally descending back down the family tree until a surviving heir is located.
For a lot of people, the laws of intestacy are the same provisions as the ones that they would put in their will in any event, so it begs the question why someone would have a will made when the law already accounts for what they want to see happen with their property. You may have already spotted the first potential problem in the very oversimplified explanation of the laws of intestacy above. The laws of intestacy don’t make a provision for specific distributions of certain property but split everything equally. Probably not an issue if the surviving spouse inherits everything, but if there is no surviving spouse, then the next step is to distribute everything to the children equally. Cash is easy to divide up, but things like real estate and vehicles lend themselves to all sorts of headaches when you need to get two or more people to agree on what to do with them. I’ve tended to find that the larger the number of people involved in the ownership of an asset, the more likely that the equity will be burned to the ground by legal fees and other costs fighting over how they will be sold.
Additionally, blended families are becoming more common place these days. A blended family would be one in which either spouse has children from outside the current marriage, such as a child from a previous relationship. If that happens to be the case, the surviving spouse only receives half of the distribution, while the decedent’s children take the other half—*I told you terms and conditions apply!
BUT WHAT ABOUT BENEFICIARIES?
Another reason that people tend to be apathetic about making a will is that they have learned about beneficiary designations. Unbeknownst to some people, you can put beneficiaries on almost any type of financial account. Checking, savings, brokerage… Beneficiary designations are commonly referred to as Pay on Death (POD), Transfer on Death (TOD), and In Trust For (ITF) accounts. This is not the same as a joint account which a joint account holder has access to during your lifetime, but rather a designation that the bank will turn the funds over to your beneficiaries upon death. Better yet, the beneficiaries can collect the assets without a probate court order or administering the estate. They only generally need a claims form and a death certificate.
Due to the nature of direct beneficiaries’ ability to collect without the need to open an administration proceeding in the probate court, it also tends to protect those assets from the creditors I talked about above. Whether beneficiary transfers are subject to collections by a decedent’s creditors is a long and complicated explanation, so most people will say they’re not, but I’m just going to say…it depends. Nonetheless, these features and the fact that it only involves filling out some forms at the bank make this estate planning maneuver very popular. So, if all of your financial assets have designated beneficiaries, why make a will?
MISTAKES HAPPEN
Maybe you forgot to fill out the beneficiary paperwork at the bank when you opened that new account. Maybe the bank made a mistake in processing the paperwork. Maybe the beneficiary you named passed away and you didn’t have a chance, or the ability, to make a change.
Mistakes and omissions happen. This is why people who choose to set up living trust often execute something called a pour over will at the same time as the trust. The pour over will simply states that any property that might end up in the probate court administration will be transferred back to the trust. It’s an important back stop in case the person creating the trust forgets to transfer something into the trust during their lifetime. The phenomenon is so common that most estate lawyers automatically draft a pour over will whenever a living trust is drawn up for a client.
The same idea applies even if you don’t have a living trust. By drafting a will, you can very clearly designate who gets the assets in case something gets missed, while also making sure that there are no surprises based on some of the legal quarks under the laws of intestacy.
HOMESTEAD
Certain property that is owned as the primary residence by a decedent may qualify as homestead under the Florida Constitution—yet another “it depends” scenario. I could write thirty thousand words on the subject and only cover half the nuance of homestead, but the general idea is that the law will not allow you to leave the family residence to someone other than your surviving spouse and/or minor children if either of those circumstance applies. Additionally, a homestead is protected from creditors so long as it is left to someone who would be considered an “heir at law.” An heir at law is more or less a blood relation but could also be established by legal adoption in certain cases. Someone not related by blood, such as a step-child, does not qualify for that protection, so this is an area you want to be particularly careful about.
The law allows you to leave the homestead to your spouse, so long as you don’t have any minor children, which you may want to address in a will. Many married people have title on their marital home in a way where both spouses are listed as owners and the surviving spouse will end up with the home based on the deed. This is known as a tenants by the entireties deed. If this is not the case, which happens more often than you might think, the effect of not naming your spouse in your will when it comes to inheriting the marital home may have some very negative unintended consequences.
Think about a scenario where you own a home prior to getting married and after the marriage you never make another deed to add your spouse to the property. Say that you also have some children from a previous marriage, possibly adult children that don’t exactly see eye to eye with your current spouse. If you die without leaving the house to your spouse in a will—or executing a new deed to ensure the automatic transfer to your spouse as a second title owner—your spouse will either get a life estate in the home or half the interest in the home, with the remainder going to your children. Without getting into the complexities of the aforementioned scenarios, I can assure you that the situation can very well get out of hand depending on how bad the relationship is between your spouse and your adult children.
FINAL THOUGHTS
From my perspective, the question as to whether you need a will is the wrong question to ask. I think the real question is “am I getting value from having a will?” It’s like buying health insurance. Whether you need heath insurance depends on if you get ill and how ill you get. If you never suffered a significant medical ailment, you would probably save a lot of money by passing on the health insurance, even if you had to eat it on the occasional out of pocket doctor’s visit or prescription. One the other hand, a little bit of bad luck in the heath department could spell a whole lot of trouble if you forgo the insurance premiums.
I think it’s easy for a lot of people to look at the expense of consulting a lawyer and having a basic will prepared as unnecessary. Most people don’t want to do anything that complicated with their estate, and it doesn’t seem like you’re getting much value if there’s not some complicated circumstance that needs to be addressed. However, the value is not related to what the will accomplishes on its face, but in what it insures will happen when things go wrong. If your plan is simple and you make the right adjustments, like designating beneficiaries on your accounts and using proper deeds on your home, the will may never come into play. But if something does go wrong, or get overlooked, at least a will can give you the assurance that things will still get where they need to go and mitigate some of the major problems that often occur once it’s too late.
As you can probably tell, the laws can get complicated when it comes to estate administration and the transfer of assets on death. This article only scratches the surface of all the legal twists and turns involved and I can’t express enough that you should always get professional advice when it comes to your estate matters—or other legal matters.
A will doesn’t need to be particularly complicated, nor does it need to be particularly expensive. I’m not suggesting it will be cheap, but it’s probably a lot less expensive than cleaning up a potential mess down the road—and probably a lot less expensive than those years of heath insurance premiums.