At this time of year, everyone is making resolutions. We resolve to get fit, lose weight and quit smoking. This year, why not resolve to do some estate planning? Surprisingly, studies show few people have done any estate planning. Estate planning is the preparation of a plan of administration and disposition of one's property before or after death, including a will, trust and powers of attorney. Its primary goal is to protect, preserve and manage an individual’s assets if he dies or becomes disabled. Despite that, the American Association of Retired Persons estimates that ninety percent (90%) of Americans have no estate plan. Forbes magazine has recently reported that at least fifty percent (50%) of Americans do not have the most basic estate planning documents, including wills and powers of attorney. Although the studies reach different conclusions, it’s clear that more Americans need to plan for their mental disability and mortality.
Some people believe that estate planning is for the rich. In reality, estate planning benefits anyone who cares about what happens to themselves and those close to them. Wealth and estate tax have little to do with need for basic legal documents. Those who have attained the age of 18 and are of sound mind and memory can, and should, create a will and other estate planning documents.
A will and many other estate planning documents can be changed or revised at any time as life circumstances change, therefore there is no reason to delay when creating a will. The benefits of a will are numerous; another reason not to delay.
A will allows an individual to determine who receives his or her assets. Without a will, the law dictates who receives the assets and it may not be what the individual wants. Many people believe that upon the death of a husband or wife, the assets will be distributed to the survivor. However, in Illinois, if there are children, only one-half (½) of the deceased’s assets will be distributed to the surviving spouse. In addition, because of the current demographic trends involving blended families, step-children may be unintentionally left out of an individual’s gifting. Many people want to give gifts to charities or friends; however, those too are missing from the statutory rules of distribution.
Wills can also be vehicles to appoint guardians for minor children. Guardians are the persons who have either legal custody of minor children or have the authority to manage and preserve the financial assets distributed to minor children when the children’s parents are deceased or disabled. If an individual does not appoint a guardian, the court will do it for her. While this may at first blush seem okay, anyone can petition the court to be guardian. The person petitioning the court may not be the best person for the job and, in fact, may be the person one would least like to see raise their children. In the limited time that a judge generally has to determine guardianship, she cannot possible know the values, lifestyle and child-rearing philosophy of the parents. The difficulty for the judge to determine the children’s best interests is daunting.
It is similarly just as important for an individual to decide who will be the executor of his estate. The executor is the person or entity who carries out, or executes, the instructions of a will. He will pay the decedent’s final bills, prepare final tax returns, collect and safeguard assets, cancel credit cards, distribute assets according to the provisions of the will and otherwise administer a decedent’s financial affairs. Only a will can appoint an executor. If an individual does not appoint an executor, a judge will do it for him. Again, the person a judge appoints may not be the most conscientious or fiscally responsible person. In such case, it could fundamentally affect the family and friends who are to receive a portion of the estate.
Creating a will can also save an individual’s estate thousands of dollars. Illinois law requires that every legal representative post a surety bond before undertaking the duties of a legal representative. The bond of a representative is an amount not less than double the value of the decedent’s personal estate (everything other than real estate) if individuals act as sureties and not less than one and one-half (1½) times the value of the personal estate if a surety company acts as surety. This bond must be paid every year until the administration of the estate is complete. However, this surety bond may be waived in a will.
A will can accomplish many other significant functions. A will can include trusts to provide for the special needs of a disabled person, keeping the funds available for the disabled person while allowing the disabled person access to governmental benefits. It can also include trusts for minor children such that a parent has control over when the child receives the assets, instead of automatically distributing those assets to the child when she reaches the age of 18. A will can be structured to avoid or defer estate and generation skipping taxes.
Due to the substantial benefits that can be realized by the formation of a will, individuals do themselves and their loved ones a disservice by failing to prepare a will. Although meeting with an attorney and dealing with one’s own mortality can be intimidating, it’s imperative that everyone meet those challenges.