The Perils of Doing Nothing
When it comes to estate planning, everyone has a choice. They can either take control and decide for themselves how they want their estate to be distributed, or they can do nothing. If you do nothing, you’ll still have an estate plan. But instead of being distributed in accordance with your wishes, the government will impose its own rules, called the rules of intestacy. If you fail to act, these rules will automatically govern how your estate is distributed, regardless of your wishes. If you have no close family, it’s possible that your estate may pass to people you don’t even know. But that’s not all. Intestate probate proceedings are complex, long-winded, and expensive, and can cause much friction between surviving family members. (We’ll have more to say about the joys of probate later.) And needless to say, the government has a vested interest in not saving you any tax. So you won’t be surprised to learn that the intestacy rules are designed to ensure that you, or your estate, pays the maximum tax possible, in every case.
Worse than all that, though, is what happens if you die intestate and leave minor children behind. If you do not appoint a guardian, your children will be placed under the custody of the local judge, who will appoint people to look after them and their inheritance (children cannot legally own property themselves and so someone has to look after it for them). Of all the decisions you have to make, choosing who should look after your children after you’re gone is the most important. You should make that decision, not a judge who probably does not know you, and certainly does not know your children. Once the court has appointed guardians, every material decision relating to your children’s welfare must still be approved by the court. The guardians may need to use lawyers, too, and things can quickly get very expensive. Even the simplest decisions can become time-consuming and complex, and your estate will meet all those costs. As you might imagine, whatever inheritance your children are entitled to on your death is unlikely to go as far as you would have hoped with such a constant drain on its resources. If that wasn’t bad enough, your children will be entitled to their whole inheritance on their eighteenth birthday. In our experience, sudden wealth and eighteen year olds rarely go well together. Few have the maturity to resist temptation, and many are susceptible to unscrupulous swindlers. Left to his own devices, an eighteen year old and his money will soon be parted. We know. We were eighteen once.
An intestate estate also must go through probate. To find out more about probate and why you should avoid it, click here.
If you have a will, then you have done more estate planning than most Americans. But have you done enough? Click here to find out.