Other Pitfalls of Not 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

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You may agree with your state's succession laws, and that would make sense. Most states try to draft their rules to represent what the average person would want. Generally speaking, most married couples would want their spouse and young children to have first dibs. Most single people, meanwhile, probably want their parents to benefit first, followed by their siblings.

Even if you agree with your state's succession plan, however, you should not leave these decisions to the state. This tactic can result in a number of other not-so-obvious problems that could have been controlled with proper planning.

Here are some of the commonly ignored pitfalls of state control:

• Your teenage children are rolling in dough: If the state leaves your assets to minor children, it's theirs to spend as they please once they reach the legal age of majority - generally eighteen years old. You may have wanted Junior to spend his inheritance on college, but the state won't stop him from spending it on fast cars and trendy nightclubs (or worse) if he so chooses.

• The family heirlooms are callously divided: The state doesn't care that you promised your little sister she could have Mother's coveted pearl necklace if you die. Personal belongings will be divided in the same manner as the other assets: The spouse gets first dibs, then the children. If heirs fight over your belongings, the state could order that everything be sold and the family divide the profits, in which case sentimental value takes a backseat to monetary value and that priceless pearl necklace is just another dollar figure.

• The tax bill is as high as it could be: The state doesn't care about minimizing estate taxes - and for good reason: Death taxes go straight to the state coffers. If you are lucky enough to have a lot of money, your heirs can pretty much be sure that they'll see the maximum possible tax rate levied against the estate.

• Your beloved pet is left homeless: Pets are legally considered property and, therefore, dealt with in the same way as property. Whoever gets control of your companion animal can do with it as he or she pleases, including sending Fluffy to the pound where she may be put to sleep.

• Your family is left penniless: By not planning, you also risk leaving your family in financial trouble. Estate planning isn't just about dividing your property. It's also about making sure you leave your family members with the financial support they may need in your absence. You may not have enough money to ensure your family's lifestyle if you die. Planning gives you the opportunity to tally your assets - including debts - and determine whether your family's financial needs could be met if you died tomorrow. (And if not, you may need to consider life insurance to fill in the gaps.) People with young children often find that they don't have enough to provide for their kids, especially if that equation involves college tuition.

• The new spouse gets all your money: If your spouse remarries, your replacement spouse may have free rein to spend the inheritance as he or she pleases. If your former spouse dies before your replacement dies, your assets could become part of his or her estate. In other words, you and your former spouse's intended beneficiaries (meaning the people you actually want to get your stuff, like your kids) could get nothing.

• Probate costs more: Dying without a will can result in a more costly probate process, because it can create barriers to simpler probate proceedings. (Probate is the court-supervised process intended to ensure that your wishes are carried out when there's a legal will, and that your estate is handled according to state law if there isn't a will.) Formal probate is more expensive because, as one lawyer put it, you can't sneeze without permission from the court. (See chapter 9 for more information.)

Appointing a Guardian for Your Minor Children

Perhaps even more important than deciding who gets what from your property is deciding who gets to take care of your minor children if you die. If you don't name someone to raise your young children, the state will do it for you.

The person who gets the job may not be the person you wanted. Furthermore, you risk opening the door to nasty custody battles. Relatives from both sides could present equally compelling cases as to why they should be granted custody. It would be up to a judge to listen to the various cases and decide who'd be best suited to raise your family.

Hopefully, it won't come to this. And it usually doesn't. When one parent dies, the other parent will generally take over. But what if both parents die simultaneously? It's rare, but it does happen. That's not all. You need to plan for an alternate caretaker if you're the only living parent, or if the other parent is alive but unfit to take care of your children.

No matter your situation, you should not delay drafting a will and naming a third-party person to be your children's guardian. The guardian will act as their new parent, feeding them and putting a roof over their heads until they're legal adults. You should also name a custodian (or trustee) to manage the children's inheritance and monitor their spending. (The guardian and the custodian can be the same person, but there are a lot of good reasons to name them separately. I'll get to that later.)

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.