Do I Really Need an Estate Plan? - Part 1: The Will

This is part one in a four-part series intended to help you answer the question of whether you really need an estate plan. This post focuses on the the first document in an estate plan, the will. In it we describe the functions of a will and what happens if you don't have one. Future posts in this series will focus on the other documents in an estate plan: the power of attorney, medical power of attorney, and living will. 

Your Will - What is it?

Gifting

Your will is the central organizing document of your estate plan. In it, you tell your executor (the person you select to administer your estate after you pass) who to distribute your property to, and you authorize that person to do so. Take the following language, for example:

“I give to Jane Doe all of my interest in my engagement ring; provided, however, if Jane Doe fails to survive me, this gift shall lapse.”

This states that the person you name as executor is authorized and required to transfer ownership of your engagement ring to Jane Doe, if the engagement ring is still in your possession at the time of your passing. If Jane predeceases you, the gift “lapses,” which means that it falls into your residue (everything that you don’t specifically give away).

Residue

As stated, your residue is everything you don’t specifically give away, and you choose a recipient for your residue just like you would do for a specific gift (like the engagement ring example, above). It looks something like this:

“I give all of the residue of my estate to my spouse if my spouse survives me. If my spouse fails to survive me, I give all of the residue of my estate to those of my descendants who survive me per stirpes. If neither my spouse nor any of my descendants survives me, one-half (1/2) of the residue of my estate shall be distributed to my heirs and the other half (1/2) of the residue of my estate shall be distributed to my spouse’s heirs.”

This language directs your executor to transfer ownership of everything you haven’t specifically given away to your spouse, if you have a surviving spouse. If not, to you descendants evenly, and if no descendants survive you, to your heirs (your closest living family members, as defined by PA law).

Probate vs. Non-Probate Property

A common misconception is that your will determines who should get “everything.” However, this is usually not the case. Your will only controls what happens to property in your “probate estate,” which consists only of property that you own personally at the time of your passing. It does not include property that is jointly owned because, strangely enough, you no longer own such property. Instead, at the moment of your passing, jointly-owned property passes immediately and automatically to the other joint owner(s). Your probate estate also does not include property owned by a trust, even if you are the trustee, because a trust is a separate legal entity and not considered “you” for the purposes of probate. Finally, your probate estate does not include assets for which there is a beneficiary designation, such as life insurance policies or retirement accounts. When you die, those assets pass immediately and automatically to the designated beneficiaries.

Executor Nomination

Your will also nominates someone to serve as executor, an important role. As discussed above, this is the person that administers your estate and carries out the wishes set forth in your will. Usually this person hires a probate attorney (like me) to help them through this process because, if done improperly, the executor can be held personally liable. If done properly, the executor cannot be held personally liable for any debt or obligation of the deceased, and claims against the estate are limited to the assets in the estate itself.

Guardian of Minor Children

Most importantly for people with young children, or those who may have minors in their care in the future, is the nomination of a guardian. The named guardian would assume responsibility for the minor upon the death of the person making their will (and usually the death of that person’s spouse, if applicable).

What happens if I don't have a will?

Unintended Beneficiaries

Without a will, PA law steps in and determines who gets what based loosely on your closest living family members. Those people whom PA law says should inherit from the estate of someone who dies without a will are called that person’s heirs. It’s a kind-of “fallback” for when a deceased person’s wishes are not memorialized in a will. The problem is that, at least in PA, the fallback scheme of who gets what out a deceased person’s estate rarely lines up with what the deceased person would have wanted.

For example, if you are married and you die without a will, a large portion of your estate goes to surviving children and, if none, surviving parents, and it does not all go to your surviving spouse. In contact, my experience is that most spouses want all their property to their surviving spouse upon their death, if there is one. It rarely makes sense to give a large chunk of money or property directly to a child or a parent of a deceased person when that person is survived by their spouse.

Tax Consequences

There are also beneficial tax consequences to leaving everything to your spouse because in a will, rather than to your heirs under the default PA law for people who die without a will. The PA Inheritance Tax imposes a 0% tax on transfers to a surviving spouse, whereas transfers to a surviving child or parent are taxed at 4.5% - no wonder PA wants more transfers to parents and children!

Guardianship Proceedings

The process for obtaining guardianship over a minor is vastly more complex and difficult when there is no will in which the deceased person stated their preferences for the nomination of a guardian. And of course, this translates into a costlier procedure as well. With a will, the process is smoother because your wishes are known.

There are more reasons to have a will, but these three are arguably the most important. If you have any questions or would like to discuss this blog post, or set up a consultation to have your will drafted, please don’t hesitate to reach out.