Did you know that over 60% of Americans don’t have a will prepared for the eventuality of their own passing?
About 78% of Millennials, or people aged 18 to 36, don’t have a will. Meanwhile, about 64% of the Generation X demographic do not have a will either.
Why should you have a will prepared before your inevitable passing? Well, there is the financial reality your surviving relatives must deal with state and inheritance taxes after your passing.
Still, the federal estate tax kicks in only if your estate is worth about $12 million. In such a situation, the federal government can tax up to 40% of your estate.
Not a millionaire or a celebrity? That does not matter. There are 18 states that levy a posthumous estate and/or inheritance tax
Massachusetts and Oregon can levy as much as 16% on estates with a value over $1 million.
New Jersey doesn’t have an estate tax, but it does have an inheritance tax. This state can tax up 16% on inheritances valued over $500 depending on the inheritor.
Depending on where you live, you don’t need an exorbitantly valuable estate for it to be generously taxed by the state.
The most important reason to have a will however is to designate who you want to exclude from it.
Exclusionary Wills
Expressly excluding relatives from your will isn’t about cruelty.
It’s about exercising prudent personal finance protection.
Many of us have close and distant relatives we are estranged from and don’t speak to.
So, to financially and emotionally protect your preferred heirs after your death, it might not be a bad idea to exclude specific relatives from your will.
Even after excluding people from your will, there are many legal methods you can use to enforce that exclusionary will.
How to do this? You can do it on your own or very affordably with the help of a lawyer.
The Legalese
An estate tax is a predetermined tax on your estate, meaning property and assets, over a minimum threshold.
If your estate is worth over $11.58 million, then the government can tax it by at least 40%.
Most states tax estates by as much as 20%.
An inheritance tax is levied by states only. This is a tax on the value of the inheritance according to who inherits it.
Only 6 states levy an inheritance tax and it usually doesn’t go above 16%.
If you die without a will, your estate will be distributed according to the state court among your beneficiaries.
This process is called probate court. A judge will appoint an executor of your estate who will notarize your assets, decide who your beneficiaries are, and decide who gets what.
Every state has its own probate code, but this is the process in general terms.
If you don’t exclude specific people from your will, then they could show up during probate proceedings, cause chaos, and try to get a piece of your estate at the expense of your loved ones.
Here is an example.
Celebrities Without Wills
If you want to understand the importance of writing a will, and the significance of specifically identifying who you want included and excluded from such, then just think about some famous celebrities who passed away without one.
Sherman Hemsley, the famed comedic actor known for starring in legendary TV comedies like The Jeffersons and Amen, died of cancer in July 2012.
Hemsley’s remains laid in a funeral home freezer for more than a month after his passing.
A man claiming to be Hemley’s long-estranged brother contested a will that Hemley prepared only a month prior to his passing.
Hemley had no children and never married in his lifetime. He left his estate to his partner and long-time business manager Flora Bernal.
This created a situation where anyone claiming to be Hemsley’s relative could contest the will.
The alleged relative contesting Hemley’s will had the legal motion thrown out in court in 2014.
Enforcing a Will That Excludes Relatives
A famous comedian once said that when there is a will, there will always be lots of relatives fighting over it.
Some relatives may hold long-term grudges. Others may feel entitled. There may be resentment against an older parent remarrying again late in life.
Long estranged relatives and non-related acquaintances may be down on their luck and strike when opportunity presents itself.
Whatever the reasons, here are ways you can exempt relatives from a will.
Or, more exactingly, legal ways to enforce excluding specific people form your will.
Survivorship Property Rights
If you have investment accounts or jointly held bank accounts or real estate, they can be legally declared as having, “rights of survivorship,” protection.
After your passing, such property and assets can be expeditiously transferred to named beneficiaries only.
Creditors, legal contests, and probate courts can’t touch it.
Set Up a Trust Fund
Trust funds designate who are your beneficiaries, what they will inherit after your death, and how they will receive benefits.
You’ll need legal counsel to set one up, but it will be worth the cost. Trust funds are legally protected from probate court rulings.
Name Life Insurance Beneficiaries
Once you name beneficiaries in your life insurance policy, whatever you bequeath goes directly to those beneficiaries. It can’t be contested in court and creditors can’t touch it either.
Pension and Retirement Accounts
Once you name beneficiaries on your retirement account, benefits automatically transfer to them upon your death.
Prepare a Will Today
Your best defense to protect the beneficiaries and inheritors of your estate, and to dissuade legal contests of probate, is to have a will.
Prepare one as soon as possible and update it regularly.
Excluding specific people form your will is the easy part. Remember the legal methods of beneficiary protection you learned here to enforce that will.
Read More
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HERE’S HOW TO CONTROL WHAT YOU LEAVE TO YOUR HEIRS (AND THE RISKS IF YOU DON’T)
GETTING LIFE INSURANCE WITH MEDICAL PROBLEMS
Allen Francis was an academic advisor, librarian, and college adjunct for many years with no money, no financial literacy, and no responsibility when he had money. To him, the phrase “personal finance,” contains the power that anyone has to grow their own wealth. Allen is an advocate of best personal financial practices including focusing on your needs instead of your wants, asking for help when you need it, saving and investing in your own small business.