The Importance of Planning

What Your Lawyer May Not Tell You About Your Family's Will: A Guide to Preventing the Common Pitfalls That Can Lead to Family Fights
by Kaja Whitehouse

What kind of legacy will your family inherit?

Financial security and loving memories?

Or years of bitter struggle over money and possessions?

It all depends on your last will and testament. In this straightforward and user-friendly guide, a top legal journalist shares the most up-to-date laws and untangles all the jargon to show you how to prepare a will-and help someone you love prepare his or hers-in a way that will prevent future lawsuits and unpleasant family disputes. Discover:

• Who may be excluded from a will
• How to prevent children from fighting over personal items such as jewelry and family photos
• How to leave money to a married child-and keep it out of the hands of an irresponsible spouse
• The best way to leave more to the child who works in the family business or lives with an elderly parent-without inviting conflict
• How to ensure young children will have a good home and enough money for college
• How to keep your children's estate from passing to your spouse's new husband or wife
• How to provide for pets that survive you

...and much more.

Chapter 1

When You Don't Plan, You Let the Courts Decide

Most people are reasonable and know that an estate or inheritance plan is important. Still, it's hard to take the time to make it happen. Why? Well, the term estate planning generally leads to images of sitting around a lawyer's office discussing the many ways you might die, and the many things that might happen to your heirs and assets when you do. As if that weren't uncomfortable enough, it also means taking the time to draft, organize, and sign the legal documents, such as wills and trusts, that dictate who will get what when you die. A trip to the dentist is almost more appealing.

There is also a sense of futility to inheritance planning. After all, why plan for something you will never see to fruition? Even worse, some people believe that planning for death is akin to inviting death to the door.

One thing that can help get procrastinators back on track, however, is knowing what might happen to their heirs and their assets when they don't plan, or when they plan poorly. When you don't plan, you let the state decide who gets what. That means the court system will distribute your assets according to predetermined laws and decide who gets to take care of your minor children.

Who Gets My Money if I Die Without a Plan?

To learn what might happen if you don't plan, take a look at Frank's story. Frank was a fun-loving guy who never drafted a will. He wasn't married and had no kids, so he didn't see the need. Also, while Frank worked hard enough to live and play, he never really had a lot of money.

All that changed, however, when Frank suffered an accident on the job. He damaged his spinal cord and several of his vertebrae. His doctors said he would never regain full control of his body movements. His suffering resulted in $6 million in damages and restitution.

With $6 million in the bank, you might think Frank would decide to draft an estate plan and decide who would get his money if he should suddenly die. Well, he did seek legal counsel after some cajoling from a friend, and a plan was hammered out - but Frank decided to put off implementing the plan until after he returned from a scuba-diving vacation.

Unfortunately, Frank died while on his vacation. His heart gave out during a scuba outing. So what happened to Frank's millions? Without a plan of his own, the state was put in charge of doling out his assets. According to the laws of Frank's state, his money would go to his closest living heir, who was his father. For many of us, that would be a fine solution. But Frank's father was a broken man with several million dollars in legal judgments against him. Between the judgments and the estate taxes, Frank's entire estate was about to disappear into the pockets of strangers.

The estate was saved when Frank's father wisely agreed to "disclaim" the inheritance. In other words, he simply said, "No, I don't want it," and it passed on to the next eligible heir: Frank's sister. The plan went through without a hitch, but another fight ensued when Frank's father accused his daughter of not caring for him the way she should have after having received Frank's money. The situation was eventually resolved, but not without a good dose of heartache and bickering, all of which could have been avoided had Frank simply signed his will before he left on his last vacation.

Each state has its own distribution rules for an intestate estate, or one without a will. The process is pretty similar throughout the country, however. Often, the surviving spouse gets everything, especially if there are minor children involved. Some states will divide the assets between the spouse and the children, with the spouse getting one-third and the children inheriting the remaining two-thirds, for example. If there is no spouse and no children, as in Frank's case, the parents generally get everything. In the absence of parents, the siblings would most likely divide the assets, and so on. If the state cannot find any living heirs, it will take possession of the money and property.

Translation: If you don't plan, you let the state decide who gets your money. It won't care whether you dislike your sister, Susie. If she's your closest kin, she will benefit from your lifetime of hard work.

DICTIONARY Intestate: A situation in which a person has died without a will. Intestate succession: The legal distribution process that occurs when someone dies without a will.

Copyright © 2006 by Kaja Whitehouse

About the Author

Kaja Whitehouse is a personal finance reporter with Dow Jones Newswires. She is also a frequent contributor to The Wall Street Journal and she writes a regular health costs column for the Sunday edition of The Wall Street Journal.