The Key to a Comprehensive Estate Plan

In August 2018, Aretha Franklin passed away, leaving four children and an estate in the tens of millions of dollars. She did not, however, leave a last will and testament. This lack of planning has created the potential for legal conflict over settlement of her sizeable estate.

While failing to create a comprehensive estate plan generates national news in the case of celebrities, it is an issue that extends to all demographics. A 2017 survey by Caring.com showed that only 4 in 10 Americans had a valid will. Often a result of procrastination, not having a will may also come from misconceptions and a lack of understanding of its benefits.

A will is a set of written directions to a probate judge explaining how the decedent would like the probate process to progress. It indicates whom the decedent wants to manage the estate and to whom he or she wants property distributed. Without a valid will, state statutes and local procedures dictate what happens, regardless of what the decedent wished.

Naming an executor. Among the most important factors in how efficiently probate moves forward is who is appointed to manage the estate. This individual is known as the executor or personal representative. Typically, the decedent names an executor in the will. Barring clear concerns about the character or financial savvy of the chosen individual, he or she will be appointed to the role.

If a qualified executor is not appointed in the will, a judge decides who will serve in the role based on who requests the appointment. Surprisingly, it is often the first individual to reach the courthouse. Sadly, he or she isn’t always someone whom the decedent would have chosen or who has the best intentions. In such instances, other interested parties can legally contest the appointment, which may cost the estate a lot of money and deplete the assets intended for its beneficiaries.

Choosing a guardian. Selecting a guardian for children younger than 18 is the most important reason why parents should have a will. Without a chosen guardian, family members could have a difficult time deciding who will care for the children if both parents pass away. Although designation of a guardian in a will strongly indicates whom the decedents trusted to care for their children, a court always assesses the fitness of the designee to ensure that the choice is in the best interests of the children.

Designating beneficiaries. With a valid will, an individual can elect which property will be distributed to whom and in what proportions. He or she can place preferred conditions on distributions using a testamentary trust (i.e., a trust created under the will).

Failing to create a will means that state law controls who inherits a decedent’s assets. Generally, each state’s statutes define the decedent’s “heirs at law,” as well as the “flow of descent” that determines which family members are entitled to a share of the estate. The statutory scheme can result in property distributed to individuals whom the decedent did not intend to benefit from the estate.

There’s one important term that I keep coming back to: a valid will. This distinction is essential because, depending on where it is signed, a will must be prepared according to very formal guidelines. Not adhering to certain guidelines can render the will invalid. Most states require multiple witnesses to the will’s execution who can attest that the signer was (1) over the age of majority, (2) of sound mind, and (3) not signing under duress. If the signer did not meet any one of these requirements, he or she lacked the legal capacity to sign the will.

Tip: It can be helpful to include a “self-proving affidavit” in the will. With this document, the witnesses or a notary attests that the three requirements of executing a valid will have been fulfilled. Typically, provided no one contests the validity of the will, the inclusion of a self-proving affidavit would mean the court wouldn’t need to go on a fact-finding mission to determine whether the signer had capacity to sign the will.

Some states permit “holographic” wills. They lack the formality of execution but provide a handwritten and signed expression of the disposition of a decedent’s estate. Holographic wills can be subject to intense disputes, however, because no witnesses attend their execution.

Marriage or divorce can also present issues regarding a will’s validity, even leading to its revocation. Consequently, if an individual has a will in place, he or she should review it whenever he or she experiences an important life event, such as marriage, divorce, or the birth of a child. This will help ensure that the will remains valid and reflects an individual’s current intent.

An emerging trend in estate planning is to include provisions for an appointed fiduciary to have authority to access “digital assets” after the account holder’s death or during periods of incapacity. Digital assets include social media accounts, online credentials to financial accounts, and accounts that store files like photographs.

Most states have enacted laws providing a fiduciary with the ability to access digital assets if a provision for such access is contained in the account holder’s valid estate planning documents.

Without a digital assets provision in the will, however, the terms of service of the online providers could control whether access is granted.

Probate is still needed. Because of the cost and length of the probate process, many people seek to avoid it. But because probate is the legal process for transferring property from a decedent to designated beneficiaries, all property remaining in a decedent’s name at his or her death must go through probate to be accessed—even if it is clearly bequeathed in a will. This can take months or years, depending on state procedures and the estate’s complexity. If a decedent owned property in multiple states, probate would have to be opened in each state in which property is located. There are many ways to avoid probate, including through beneficiary designations on accounts and certain types of trusts.

Tax planning is still needed. Planning for estate taxes through a will is possible, but it isn’t as efficient as using a trust. Why? To avoid estate taxes upon the death of one spouse, for example, a testamentary credit shelter trust, formed through the will, must be used. This could require court oversight regarding the appointment of the trustee, as well as ongoing accountings.

Additional estate planning is still needed. Although a will is a vital piece of every estate plan, it addresses only what happens to the estate when the decedent dies, not what would happen if he or she were alive but incapacitated. A comprehensive estate plan should always include a durable power of attorney (POA) for property, as well as health care documents, to ensure that an individual’s family isn’t financially burdened in the event of his or her incapacity.

With the high threshold for estate taxes and the advent of portability of estate tax exemption between spouses, the use of joint revocable trusts has become as ubiquitous as the will alternative. If an individual’s nonqualified assets are titled in the name of a revocable trust, probate can be avoided. Additionally, the designated trustee can access the assets without a POA in the event of the individual’s incapacity. Even if an individual or couple has a trust, a will is still needed in case the trust maker fails to fully fund the trust prior to death.

Sage advice would be to say that “everyone should have a will.” The better statement would be that “everyone should have at least a will.” It is an essential component of every estate plan. It helps ease the probate process and makes an individual’s wishes clear and binding after death. To help clients form a comprehensive estate plan that addresses the various contingencies resulting from tax laws and individual circumstances, encourage them to explore additional legal tools, such as trusts and POAs, to protect their hard-earned wealth.

How have you helped your clients recognize the importance of having a will? What changes do you see occurring in the estate planning space as we become increasingly reliant on technology? Please share your thoughts below.