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Three things to know when updating your will

April 4, 2022

Passing intestate, or with a will that fails to cover all the bases, presents an array of challenges especially acute for business owners and individuals with large assets.

Perhaps unlike tax planning, wills and estates are two items that Americans of all ages and backgrounds either put off or leave to chance. A survey by Gallup in 2021 revealed that only 46% of adults had a finished will. The research revealed a significant age disparity: Whereas people over the age of 65 were considerably more likely to have an up-to-date will, only about 36% aged 30 to 49 had one, and just over half of those above 50 did.

If the abruptness and profound tragedy of the COVID-19 pandemic has underscored one lesson in estate planning, it is that time is not always on people’s sides. The consequences for not having a will at all, or for having one that fails to cover all bases, can be daunting and made more severe for people with businesses or large amounts of investments and personal property.

For those looking for straightforward places to start on developing or improving their estates, an experienced attorney should collaborate with them on three core areas. 

The first is to clearly establish bequests and inheritances, keeping their unique family structures and personal relationships in mind. The second, for business owners and partners, is to reexamine proprietorship or other legal agreements to determine who takes control and how assets will be settled. And the third is to maximize tax and charitable arrangements to ensure that survivors are adequately cared for once they are gone.

To provide background, regardless of whether a person dies with or without a will, probate court will play a role. With a will, the court will review provisions for the distribution of personal property, the resolution of debts, and matters like custody of minor children. Where a will does not exist, the state’s intestacy statutes will determine how these matters are settled, except for assets with inbuilt designations such as life insurance policies or retirement accounts. 

While survivors can petition the court to be named a state administrator, and thus given the responsibility of paying debts and distributing assets, they would be doing so according to intestacy laws. In practice, this can produce vastly different outcomes than what the deceased may have desired, or sometimes, what is even in the survivors’ true interests. Even at first glance, it is obvious how a variety of individual situations would not be covered. This makes the first recommendation particularly critical, not only in having a will, but ensuring that inheritances, guardianships and trusteeships are efficiently cared for. 

Wills and estate plans must be both tailored and periodically reviewed or adjusted to reflect family relationships and prevent conflicts of interest. This is not simply about ensuring assets do not end up in the wrong hands. A prime example is effectively “separating powers” by considering the appointment of a different estate trustee from the person named the legal guardian of minor children, avoiding a potentially thorny situation. 

Second, business owners should clearly emphasize the next steps for their company in the will. Sole proprietorship businesses, for instance, become effectively extinct if their owner dies with no will, with assets being liquidated to settle debts and tax obligations and then similarly distributed according to intestate statutes. While limited liability companies are clearer in theory, with rules existing under their operating agreements to determine what happens when a shareholder dies, intestacy law can still enter the picture for selling shares or inheritance tax issues. This may bring survivors into conflict with surviving shareholders, and impede on the business’s success in the long-term.

Third, more broadly, whether the person has a will or is just getting started, it will be important to review its tax and legal provisions carefully. This includes creating charitable trusts that minimize exposure to capital gains tax and reduce the estate tax burden, as well as maximizing charitable donations during the person’s lifetime. Survivors should be as prepared as possible to succeed, in the family business or otherwise, through clear discussions about what is contained in the will, and easing children and grandchildren into the roles eventually expected of them as early as possible.

A close collaboration with estate planning attorneys will produce the most optimal outcome, combining asset and wealth management knowledge with a nuanced understanding of the legal underpinnings of a will. This will be crucial for preventing or minimizing disputes. Existing wills should be regularly reviewed, too – even if nothing has happened to necessitate major changes.

While still living, people exercise maximum control over their legacies and positions in the world. But when they are gone, so is their control, with the fate of what comes next left to their survivors. This, above all, is the most powerful reason why “estate matters” should be at or near the top of priority lists this year.

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