Why should you have an estate plan?

Estate Planning…It’s one of those things that most people have heard of and maybe they’ve even thought about doing it, but just haven’t gotten around to it. Some people think it’s only for the wealthy, but it’s not. Almost every time I meet with a new client I hear “I’ve been meaning to do this for years, I just haven’t gotten around to it.” Estate Planning is an important way for you to determine what happens in your life and what happens after your death- to your family and your possessions.

Who is best able to determine what happens to your property or your children, you or the government? I would argue that 99.9% of the time it’s YOU. Each state has its own intestacy statute that governs who your assets go to upon your death. Who gets your property when you die is determined by those statutes if you don’t have a will. Presently, if your primary residence is in Massachusetts and you are married and you have no descendants (i.e. children, grandchildren, etc.) who are not also descendants of your spouse and no surviving parents, then your spouse receives your entire probate estate, after expenses; but remember, laws are always subject to change. The statute (Mass. Gen. Laws ch. 190B §2-102) becomes more complicated when we start examining people who have other children who are not descendants of both the spouse and decedent (the person who died), the decedent’s parents are living, or if there is no spouse or other descendants.

Or maybe you live in New Hampshire. There, R.S.A. 561:1 governs who gets your property upon death if you die without a valid will, similarly, your surviving spouse only gets your entire probate estate if there are no surviving issue (i.e. children, grandchildren, etc.) AND your parents have also predeceased you.

It is important to remember, however that no everything becomes part of your “probate estate”, for instance, your life insurance policy, 401K or other accounts that have beneficiary designations do not generally become part of your probate estate, unless you have not named beneficiaries. Property that is held as joint tenants or tenants by the entirety in MA, is also not considered part of your “probate estate”. In a day and age where families are blended and it is easy to move from one place to another (especially if you live near a state border), it’s more important than ever to have the appropriate documents in place so who gets what is your choice, not the one size fits all approach that the statute in your home state provides.

Take Joe for example…

Joe lives in Tyngsboro, Massachusetts. He is married to Cindy. Joe and Cindy have three boys together- ages 8, 10, and 13. Joe’s parents are both living and he has one daughter, Mary, from a prior marriage. Mary has graduated from college, a few years ago and now has a good job. Joe and Cindy own their home in Tyngsboro jointly. Joe has a 401k from his employer, 2 life insurance policies and an IRA account, all of these have beneficiary designations. Joe and Cindy have a couple of joint bank accounts; however, Joe has some individually owned stocks and a savings account that he’s had since before they got married. He also owns a vacation home on Newfound Lake in NH, in his name only, which he and Cindy are planning on moving to full time…someday. One of Joe’s life insurance policies has Mary, named as the sole beneficiary. Though that policy was set up as part of the divorce settlement, in case something happened to him before Mary finished college, Joe has left the policy in place even though she’s now an adult with a good job, to provide something for her when he dies. Joe loves Mary, but gave up a lot in the divorce and feels strongly that the life insurance proceeds will be a good inheritance for her. It will leave her money for a down payment on a house or to pay for her wedding. Joe’s parents are self-supporting and he feels that any of his assets should go to support Cindy and their minor children. But what happens if Joe dies survived by Cindy, his parents, his four children and has no will? OR what happens to his children if Cindy dies before Joe?

WITHOUT A WILL IN MA WITHOUT A WILL IN NH (if they lived in NH when he dies) IS THIS WHAT JOE WANTED?
Cindy gets their jointly owned bank accounts, the house in Tyngsboro, anything else they jointly own, the life insurance proceeds for the policy that she’s the designated beneficiary on, and anything else on which she’s named as a designated beneficiary (i.e. 401k) AND the first $100,000 plus ½ of the balance of the estate (i.e. his stocks, individual bank account and the lake house). Cindy gets their jointly owned bank accounts, the house in Tyngsboro, anything else they jointly own, the life insurance proceeds for the policy that she’s the designated beneficiary on, and anything else on which she’s named as a designated beneficiary (i.e. 401k) AND the first $100,000 plus ½ of the balance of the estate. Cindy may also have a homestead exemption on the lakehouse that she could claim, since they were living there full time when Joe passed. No- Joe wanted Cindy to get everything. Except the one life insurance policy Mary is named on.
His 3 boys have an equal share in the ½ of the remaining estate balance (after Cindy’s share) with their half-sister. So they each get ¼ of what’s remaining after Cindy’s share. His 3 boys have an equal share in the ½ of the remaining estate balance (after Cindy’s share) with their half-sister. So they each get ¼ of what’s remaining after Cindy’s share. No- he knows Cindy will take care of their children, besides they’re kids what are they going to do with the money when they turn 18?
Mary gets the life insurance policy money PLUS ¼ the kids’ share. Mary gets the life insurance policy money PLUS ¼ the kids’ share. No- Joe wanted Mary to only get life insurance proceeds. Her mother got a lot in the divorce and her mom has no other kids, she’ll inherit a lot then. He paid for her college and she’s an adult now, he has younger kids he needs to raise and put through school.
WHAT IF CINDY DIES BEFORE JOE?
Joe’s children all share equally in his estate. There is also the issue of guardianship of the children- who will raise them? Joe’s children all share equally in his estate. There is also the issue of guardianship of the children- who will raise them? No- Joe wanted Mary to only get lift insurance proceeds. If Joe had done an estate plan, he could have his kids’ money go into a trust so they couldn’t spend it all at once. He could also have designated a guardian for them.
WHAT IF CINDY WERE STILL ALIVE BUT HE HAD NO SURVIVING DESCENDANTS?
Then Cindy would only get $200,000 of the estate plus ¾ of the balance of the estate. His parents would get the remaining ¼ of the estate. Then Cindy would only get $250,000 of the estate plus ¾ of the balance of the estate. His parents would get the remaining ¼ of the estate. No- Joe wanted Cindy to get everything.

*NOTE: For simplification, I have not used specific numbers regarding the value of Joe’s assets or talked about spousal or family allowances, creditor’s claims or possible estate tax implications.

If Joe had had an estate plan in place when he died, he could have accomplished his goal of having Cindy (or his boys if Cindy predeceases him) get everything in his estate. Even if your life is not as complicated as Joe’s you should talk to an attorney about estate planning.

A good estate plan examines all of these assets, not just what is in your “probate estate” and takes into account possible estate tax liability. It can also help you and your family avoid probate altogether. In the event you become incapacitated or are unable to make your own medical or financial decisions prior to your death, through the use of a health care proxy and/or advanced directive (depending on your state), a durable power of attorney, and maybe even a trust, your estate plan can help your family do these things for you without the time and expense of going to court for a guardianship or conservatorship.

With some planning you can save your loved ones a lot of time and expense and make sure that your wishes are known. If you already have a plan, review it every few years to make sure that that’s still what you want.