Estate Planning for Generations X, Y and Z
If you are young and still trying to establish your career, you may think you do not need an estate plan. Many people think wills and estate planning are only for the old and wealthy. This could not be further from the truth. Here are five good reasons you should have an estate plan regardless of your age.
1. You want your property to pass to certain people. If you die without a will, the Illinois Probate Act specifies who will receive you property. The people that the legislature has chosen for you may not be the same people you would choose for yourself. (Contrary to what many people believe, if you die without a will, your property does not go to the State of Illinois unless you do not have any living relatives.)
Example One. Jack and Jill have an infant daughter Hill(ary). Jack dies without a will, and the family home is only in his name. Under Illinois law, Jack's property passes one-half to Jill and one-half to Hill. Because of Jack's death, Jill wants to sell the home and move closer to her family, however, Hill owns half of the home. Therefore, Jill must go to court to be appointed guardian of Hill's estate. Jill must then ask the court's permission to sell Hill's half of the home. She must ask the court's permission again if she wants to use Hill's half of the proceeds to purchase a new home.
Example Two. Jack and Jill are not married and live together in a home owned by only by Jack. Jack dies without a will. Jill has no rights in the home and must leave when told to do so by Jack's family.
Example Three. Jack marries Jill who has a daughter Hill from a previous marriage. Jack loves Hill and thinks of her as his own, but does not adopt her. Jack and Jill are both killed in a car accident and do not have wills. Hill will not receive any of Jack's property because she is not legally his child. The situation could be even worse. If Jack survives the crash but dies a week later, then Hill will receive only one-half of Jill's estate. (Jill's estate would pass one-half to Jack and one-half to Hill.) Jack's family would receive all of Jack's property and one-half of Jill's property. If you think Jack's family will generously give the property to Hill because they know that Jack loved Hill like his own, you would be wrong 99% of the time.
Example Four. Jack and Jill die without wills. They wanted to provide for Hill, but since she was just a baby, they named Jack's sister Sue as the beneficiary of their brokerage account, believing Sue would use the assets to care for Hill. Instead, Sue decides to take the money and moves to Bermuda. Or, Sue has every intention of taking care of Hill, but times are tough and Sue has to file for bankruptcy. Because the assets in the brokerage account belong to Sue and not Hill, they are lost in the bankruptcy.
These examples may seem unlikely to you, but we are currently handling cases like examples two and three in our office. We are also handling cases more and more cases involving adopted and step-children.
2. You do not want your property to pass to someone. A will is equally important if you want to exclude people from your estate plan.
Example One. Jane dies survived by her mother, father and a brother who has a drug problem. Jane would like all of her property to pass to her parents, but she does not have a will. At Jane's death, her property will pass one-third to each of her parents and brother.
Example Two. John dies survived by his father and a brother. John's father left shortly after John was born, and John has not seen him since. However, the father's parental rights were never terminated. John would never want a cent of his money to go to his father, but he does not have a will. At John's death, his property will pass two-thirds to his father and one-third to his brother. In this case, because John's mother did not survive John, his father also receives the share his mother would have received.
Example Three. Jack and Jill divorce. Jill fails to change the beneficiary of her 401(k) plan. Jill dies. Jack receives her entire 401(k).
3. You are worth more than you think. When analyzing your net worth, remember to count all of your assets, including life insurance and retirement plans. You may have significant life insurance through your employer, such as three times your salary. If you think you do not need an estate plan because your estate is too small, you may not be considering all of the facts.
4. You want to change the world. Jill is young and single. She loves everyone in her family, so there is no one she wants to exclude. She trusts them completely to divide her assets among themselves. However, Jill wants to make the world a better place. She goes to church every Sunday, and volunteers at the breadline and for children's charities. She cares about abandoned animals and the environment. When Jill takes the time to think about her estate plan, she realizes that she would rather have her assets pass (in whole or in part) to the organizations and causes she supports. Jill should not be dissuaded from her plan because she thinks her estate is too small. In these rough economic times (and even in good times) not-for-profits are grateful for every bequest they receive.
5. Someone you love has special needs. You may want all of your assets to pass to your child, your parents and/or your siblings, but your beneficiary has special needs. Perhaps your mother has Alzheimer's and is living in a nursing home or will be at some point. If your mother has limited assets, she will probably need to qualify for Medicaid for long term nursing home care. In that case, you should consider leaving your assets for mom in a special needs trust that will not disqualify her from Medicaid. The same would be true if you have a sister with Downs Syndrome. Or, perhaps you have a brother who cannot manage money or who has a drug problem. By leaving the assets to a trust for him rather than outright, you can allow him to benefit from the assets without wasting the assets or using them to hurt himself.