By: Paul S. Motin, JD, LLM, CPA
Face it. Most people don’t want to consider the fact that they are not immortal. Unless a person can be convinced there is great benefit to planning for the inevitable demise, he or she will think up any excuse for not having a Will or other estate planning documents prepared. Unfortunately, there are many misconceptions about the estate planning process and the probate process that follows. Until these myths are dispelled, the person will believe, often wrongly, that he or she does not need or should not have a Will.
Myth No. 1: “I don’t have enough assets to make a Will” (or “I don’t need a Will.”)
While some attorneys don’t like to admit it, it’s true that not everyone needs a Will. State law will determine methods for administering your estate, for distributing your assets, and for appointing someone to take care of your children. However, in many cases, State law will not result in the same outcome as what is desired. A valid Will can make certain that your intentions are followed and it can make handling your assets after your death much easier.
In order to determine whether a person needs a Will, it’s important to realize what will occur if no Will exists. For purposes of this discussion, assume you are married, have two young children (one from that marriage and a stepchild from your spouse’s prior marriage) and are a resident of Illinois. Your total assets include your home (which you bought in your own name (not jointly) and which is worth $400,000) plus $300,000 in cash. Most people in this situation that I have worked with hope (and usually expect) that, upon their death, all of the assets will go to the surviving spouse. Unfortunately, Illinois’ intestacy laws (and probably most states’ laws) provide for a different distribution.
In Illinois, if a person dies without a Will and leaves a spouse and at least one child (and ignoring certain minimal allowances), the surviving spouse will be entitled to 50% of the decedent’s estate. The decedent’s child (but not the stepchild) will be entitled to the remaining 50%. This can be problematic as the results of the example show: You had a total of $700,000 in assets. Your surviving spouse is entitled to $350,000 and your child is entitled to the remaining $350,000. With the house being worth $400,000, your spouse cannot receive the house outright from the spouse’s share. This could result in your surviving spouse having to buy out part of your child’s share and none of the cash would go to your spouse. Alternatively, the house could be split between the spouse and child as tenants-in common; though, this is cumbersome, especially if the house needs to be refinanced or sold in the future.
An additional problem that results is that a Guardian of the Estate for the child will likely need to be appointed by the Court to manage the child’s share until the child attains age 18. The Guardian of the Estate will need to file annual reports and annual accountings with the Court on an annual basis.
There are “Will Substitutes” which will control over intestacy laws (and over Wills, too) which may be used to avoid the intestacy distribution rules. These include holding assets in joint tenancy or tenancy by the entirety, trusts, “Transfer on Death Instruments” (“TODI”), and “Pay on Death” or “Transfer on Death” designations on bank and investment accounts. In the above example, the harshness could be somewhat avoided by placing all of the assets in joint tenancy. This would result in all of your joint assets going to the surviving spouse. Upon that spouse’s death, the assets would pass to your spouse’s surviving children (although, note that a probate will still be necessary upon the surviving spouse’s death if the designations are not changed). However, as discussed in the following paragraphs, Will Substitutes might cause inequities if no children survive both you and your spouse. Another “problem” with Will Substitutes is that a person cannot be certain that he or she will outlive the intended beneficiary. A Will can determine where the assets will go if the beneficiary dies first.
Illinois law provides that, if you have no surviving spouse, your assets will be divided evenly between your children (but not a stepchild) with the descendants of a deceased child taking the child’s share. If you have no surviving children or descendants, your parents and siblings take your assets. If none of these relatives exist, then the assets pass to other, more distant, relatives.
The result of these rules may be very harsh. Let’s say you amassed a small (or great) fortune, were married recently and have no children. If you die, your assets pass to your spouse. If your spouse then dies without a Will, those assets will pass to your spouse’s family, with your family receiving nothing, regardless of what may have been intended. Short of having a trust prepared, or very careful use of Pay-on-Death, Transfer on Death and TODI designations, this result will not be avoided without a Will.
In addition to being able to determine the distribution of your assets, a Will should ease the burden of the probate process. Assets could easily be tied up for a year or, quite often, much longer. A clearly drafted Will can definitely help. The Will can name your Executor (the person who handles the affairs of the probate estate), can nominate a person to be the guardian for your minor children, can instruct the Executor as to what to do with certain properties (e.g., should certain assets be sold or should they be transferred directly to the children?), can eliminate any statutory bond that may otherwise be required, and can even create trusts or make distributions according to a written formula so that estate taxes may be minimized.
It is usually best to have a Will. The cost of a simple Will is usually not prohibitive. In the event of a probate, just having the Executor named in the Will and providing in the Will that a surety bond is not necessary will usually save more than the cost of the Will. [I caution against attempting to prepare a Will yourself (even if done with a computer program). Qualified estate planning attorneys are much more able to spot problem areas than a form book or computer program; plus, there are certain formalities required by law regarding, for example, the signing of the Will, the revocation of prior Wills and the terminology to be used. Because of the increased possibility of a Will contest, having an incorrectly worded Will can often cost much more to administer than if there were no Will at all.]
Myth No. 2: “The State takes my assets if I don’t have a Will.”
Generally, this is untrue. Other than Court filing fees, if you have any living relatives that can be located (and that will accept your assets), the closest relation to you will take your assets. Only if you have no relatives at all will the State take your assets.
There is a Federal Estate Tax for people dying with more than $11.7 million (as of January 1, 2021) and Illinois has an Estate Tax for people dying with more than $4 million. Having Wills or other estate planning can often reduce these taxes significantly, if not eliminate them altogether.
Myth No. 3: “If I have a Will, my estate will have to be probated” (or “If I have a Will, I will avoid probate.”)
Having or not having a Will has no direct effect on whether an estate must go through the court probate process. What is most important is the amount and type of assets owned by the decedent. The primary purposes of probate are to determine the validity of a Will, if any, to determine the proper distribution of assets (whether by the terms of a Will or by intestacy laws), to properly retitle the assets to the recipient’s name, and to settle any and all claims and debts against the decedent and the estate.
“Probate” does not usually affect “non-probate” assets, such as joint tenancy property, life insurance payable to a named beneficiary, trust assets, assets held in a Pay-on-Death or Transfer on Death designated account, TODI property, etc., and thus, if these are the only assets owned, a probate will generally not be necessary. In addition, if a decedent has $100,000 or less of probate assets (other than real property), a probate may be avoided by using a Small Estate Affidavit.
If probate assets exceed $100,000, and if assets must be retitled, probate will almost always be necessary. In addition, anytime the decedent owns real estate in his own name at the time of death, some form of probate proceeding will be necessary to transfer ownership.
Having a Will might have an indirect effect on whether an estate must be probated. Assume you have two children, no debts and $150,000 worth of assets that don’t need to be retitled (e.g., cash, jewelry, equipment, furniture, etc.). You want two-thirds to go to one child and one-third to go to the other and you have a Will which states this. When you pass away, each child’s share is readily determinable. If neither child wants to contest the Will, and if the children are certain that no creditors exist, they could agree between themselves to distribute the assets according to the Will without going to court.
Generally, most people who own assets worth more than $100,000 or any real estate should have a Will. While there are some small exceptions to this general rule, the benefits of having a Will will almost always be greater than the small cost involved. You should contact a qualified estate planning attorney for more information and for document preparation.