Financial Literacy
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financial literacy
Preparing a will

Despite advances in medical technology, the mortality rate for humans remains stubbornly fixed at 100 percent. So why is it that about millions of Americans still die without a valid will?

Everyone needs a will. The primary purpose of a will is to ensure that your assets are distributed to whomever you choose in the amount and manner that you choose. Other functions include assigning guardianship to minors and appointing an executor to dole out your stuff.

Suppose you die in a car wreck caused by a drunk driver. Even if you have no assets, your estate might have a wrongful death suit that produces millions, all of which will be divvied up by the state if there's no will.

Dying intestate also triggers a little-known hassle in the form of an administrative bond. When someone dies without appointing an executor, the court appoints an administrator to disburse all property that wasn't jointly owned with a survivor. The administrator must post a bond to ensure that he doesn't loot the estate and vanish. The cost of that bond, usually about $100 a year for every $100,000 in the estate, is paid by the estate's assets.

In general, a will must be signed in the presence of two witnesses to be legal (as do "codicils," or subsequent changes). Handwritten wills, known as "holographs," are legal in about half the states.

But a higher quality will isn't that pricey. An attorney will usually do a bare-bones "simple will" for less than $100. A simple will means no trusts and an estate value under $1 million, which is a magic number because it's now where federal estate taxes, at a rate of 50 percent, kick in.

Tax law changes in 2001 mean the amount of an estate that's exempt from taxes will gradually increase and the tax rate applied to the remaining amount will drop until the estate tax is eliminated in 2010. In 2011, the estate tax exemption will go back to $1 million and the tax rate on the remainder will go to 55 percent unless Congress takes further action. That's why estate planning remains critical. And while your talking with your attorney, it's a smart idea to discuss related issues -- power of attorney in the event you are disabled but not dead, a living will to deal with heroic medical efforts. All this can be incorporated for about $200 to $300 total, assuming again that your estate is relatively modest and depending on where you live.

Living trusts

Those with substantial estates (at least $250,000 or so) might consider establishing a living trust.

A trust is simply an agreement between the grantor (the person who establishes and funds it) and the trustee, who administers it. When someone with a living trust dies, he can leave all his assets to the trust, which can then be doled out by the trustee. This escapes the attorney's fees for handling the probate process (probate simply means "presenting the will" to the court, and the fee is usually about 2 percent to 3 percent of the estate). Living trusts also get the assets into the heirs' hands quicker (60 to 90 days vs. nine months or so for probate). Caution: A living trust is never a substitute for a will. An attorney will set up a living trust for $500 to $1,000, and there's a yearly maintenance fee charged by the institution that houses it.

Living wills and power of attorney

Mark C. White, an attorney in Cleveland who specializes in estate law, emphasizes the importance of a living will in today's medical climate. "In the past, people tended to just die. Now, people live for years, but are unable to make competent decisions. Lawyers make money off these people. I've had guardianships where I've made money for years that the relatives wouldn't have to pay had they established each other as nominated power of attorney. Because the judge has to approve every little thing -- a stock sale or if the house needs to be sold."

White says that anyone who may end up in charge of their parents' assets should they become disabled should seek a power of attorney provision. "Power of attorney isn't foolproof, but it can save a pile and is almost as important as a will.

Do-it-yourself wills

If you choose to prepare your own, make use of several good do-it-yourself will-maker kits, both in print and electronic versions, the best of which are sold by legal publisher NOLO. Not surprisingly, estate lawyers tend to recommend professional legal help, and their case isn't without merit. White points out that the kits only help with those questions the filer knows to ask. Stuff like durable power-of-attorney is critical in today's era of people living for decades without the faculties to make financial decisions for themselves. And every estate lawyer in the land has horror stories of survivors who suddenly found themselves in estate-bleeding battles with long-lost relatives. So use the kits if you like, but don't automatically think that certain facets don't apply to you.

One last common error: Use a separate document for special burial instructions. Estate attorneys all have clients who buried their parents only to open the will a few days later and discover a mad desire to be cremated.

Ken Kurson has written for Forbes, Worth, Esquire, The New York Times and elsewhere. Kay Bell contributed to this story.

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