Do You Really Need a Will?

Many people believe they don’t need a will. But how valid are the more common reasons for not preparing a will?

Your estate is too small. Some believe that if their estate won’t be subject to estate taxes (in 2021, your taxable estate must be over $11.7 million before estate taxes would be owed), there is no need for a will. However, a will’s purpose is not to save estate taxes, but to:

Provide for the distribution of your assets.
Without a will or other estate-planning documents, your estate will be distributed in accordance with state law, which may or may not coincide with  your desires.

Name guardians for minor children.
Without a will, the courts decide who will raise minor children when both parents die.

Select an executor for your estate.
The executor assembles and values your assets; files income, estate, and inheritance tax returns; distributes assets; and accounts for all transactions. You will typically be

in a better position, based on family relationships and individual qualifications, to decide who should be named executor of your estate.

All your property is jointly owned.  When one owner dies, jointly owned property passes directly to the joint owner, regardless of provisions in a will. Also, the unlimited marital deduction allows you to leave any amount of your estate to your spouse without paying estate taxes. Thus, many married couples use joint property ownership as their sole estate planning technique. However, individuals with very large estates may save
estate taxes by distributing some assets to other heirs.

A living trust will distribute your assets. Only assets actually conveyed to the living trust are controlled by the trust document. Typically a pour-over will is also needed, which places any asset not held by the trust at your death in the trust.

You expect your estate to grow significantly in the future. Some feel it is premature to plan their estate while it is being built. However, a will can be changed. In fact, you should periodically review your entire estate plan to see if changes in your personal situation, preferences, or tax laws require changes to your plan.

The Financial Aspects of a Death

The emotional trauma of dealing with a loved one’s death can be devastating. If you also have to handle the financial aspects, it can seem  overwhelming. Following is a checklist to consider:

Your most immediate concern will be to notify family and friends of the death and to make
funeral arrangements.

If a surviving spouse and/or minor children are involved, evaluate their means of support and determine whether care for the dependents needs to be obtained.

Locate any safe deposit boxes and follow  necessary procedures to have them opened.

If the deceased was employed, contact his/her employer to start the process of collecting any
outstanding pay, life insurance proceeds, or other benefits.

Locate important documents, including wills, trusts, deeds, investment records, insurance policies, business and partnership arrangements, and other evidence of assets and liabilities.

Meet with an attorney to discuss the deceased’s estate matters.

Financial Thoughts

Individuals in retirement face five risks: outliving their money (longevity risk), investment losses (market risk), unexpected health expenses (health risk), unforeseen needs of family members (family risk), and retirement benefit cuts (policy risk). A recent study found that the greatest risk is longevity risk followed by health risk. However, retirees believed that their greatest risk was market risk. Many discounted longevity risk and health risk because they believed they would not live long enough to outlive their savings or to accumulate a large amount of health costs (Source: Centerfor Retirement Research at Boston College, July 2020).

A recent study found that investors tend to flee volatility and chase stability, but end up with bad timing with respect to stock volatility. This leads to high exposure to stocks when volatility is high and low exposure to stocks when volatility is low, resulting in returns with higher volatility (15% to 20% over 10- year periods and 70% to 75% for 30-year periods) than buy-and-hold-returns (Source: AAII Journal, October 2020).