The 5 Most Important Reasons to Have a Will
1. Avoid Intestacy Laws
If you never get around to getting a Will, don’t worry – the legislature will write one for you. If you die without a will you are “intestate” and the intestacy laws of your state govern what happens to your property. In almost all situations the legislature’s idea of what should happen to your property is very different than yours.
Let’s just take one example involving a married couple in Maryland without a will. If the husband dies and leaves a wife with a minor child, the wife and minor child split the inheritance. Contrary to popular belief, the wife would not inherit the entire estate. This leads to some absurd results like the wife now owning the house 50/50 with the baby.
If the husband dies and leaves a wife and an adult child, again the wife would not inherit the entire estate. After a small spousal allowance, the wife would once again be splitting with the adult child. The ultimate absurdity occurs when there are no children. After a small spousal allowance, the wife then ends up splitting with the husband’s parents!
2. Trust to Protect Children
Without a Will, your property will pass directly to your heirs regardless of whether they have the ability to appropriately manage the property. Most people would not want their eighteen-year-old son or daughter to inherit $100,000 in cash. Instead of a college education, your child may end up with an expensive sports car. A Will allows you to control – through a testamentary trust –assets after your death. In a Will you could put that $100,000 into a trust for the child. A trustee could be named who would be prohibited from giving the money to the child until they reach their 25th birthday. The trustee would have the discretion during the interim to pay for appropriate expenses like tuition and medical expenses. The same technique can be used for anyone who may need help in managing his or her inheritance.
3. Waiving Bond
The “bond” is actually an insurance policy insuring the creditors and heirs against improper acts by the personal representative. In Maryland, the court will require your personal representative – even if it is your spouse – to post a bond in order to be appointed personal representative. The personal representative will be required to apply to a bonding company that will typically require a background and credit check. The bond can be expensive if there are significant assets in the estate. There are also circumstances where the personal representative may not be able to be “bonded.” This could be because of criminal problems, bankruptcy, or just bad credit.
In a Will, you can waive the requirement for a bond. While courts in Maryland still require a “nominal bond,” that is usually only $100 to cover court costs. This nominal bond also does not require any type of background or credit check.
4. Choice of Personal Representative
Without a Will, there may be a contest as to the appropriate personal representative of your estate. The personal representative (also known as executor) is the person with the responsibility to administer your estate. This is the person with the court-appointed power to gather up all of your assets, re-title them, and ultimately distribute them to your heirs. Without a Will designating that person, a person whom you do not trust or more than one person may petition to the court to be appointed. Battles over the appropriate personal representative can be both time-consuming and costly. By designating in your Will the identity of the personal representative, an estate can be opened up without a court hearing, usually the same day.
A Will can reduce estate taxes for married couples. The Will itself provides no tax advantages over dying without a Will (intestate). However, the Will can be used to maximize the amount married couples can pass on without paying estate taxes. The use of a bypass trust allows both a husband and spouse to use their maximum allowable exemption. Each spouse is allowed to give up to the exemption amount tax-free. In Maryland, the exemption amount is 1 million dollars. So the husband can give away 1 million dollars and so can the wife. The problem is that there is no limit on how much a spouse can give to the other spouse without estate taxes – its unlimited. This then prompts spouses to give everything to each other. And by doing that, the first spouse has now lost their 1 million dollar giveaway. When the second spouse dies, he or she only has a million to give away tax-free. The married couple should be able to give away 2 million dollars to their loved ones without tax. A bypass trust written into the Will preserves the first-spouse-to-die’s 1 million dollar exemption by putting it into a trust.