Posts Tagged ‘Trusts and Estates’

Can I write my children and/or spouse out of my will?

April 23, 2012

The short answer is yes, you can write your spouse and children out of your will, but there is of course a “but.”  Multiple times recently I have found myself explaining to clients and friends just what “testamentary freedom” means in Iowa.  As a general rule in the United States, we are free to choose who gets what property when we leave the world behind. I will spare us all the history lesson, but historically this was not the case and many countries still limit the ability to completely disinherit a surviving spouse or children. Iowa still has protections in place for those individuals also.

Children have no “right” to inherit from their parents, but there are certain assumptions in place that protect the children. For instance, children born or adopted after the execution of a will (referred to as “pretermitted heirs”) typically receive a share of the estate. Some wills specifically provide for this by defining the term “children” in the will to include any children born to or adopted by the testator after the date of the will. Including such a statement saves a couple from needing to change their wills every time a child is born.  Even if the will does not address it, Iowa law provides a share to children born after the date of the will unless it appears the omission was intentional. (Iowa Code Section 633.267).  Also, children and grandchildren are among the classes of beneficiaries who are not charged inheritance tax in Iowa.  Does inheritance tax really stop someone from disinheriting a distant child? Probably not, but if a parent is indifferent between leaving property to nieces and nephews or estranged children, the tax difference may be a factor.

Spouses in Iowa have more protection than children. While you can draft a will leaving nothing to your spouse, the surviving spouse has a right to an elective share, meaning he or she can “elect” to take approximately one-third of your property instead of the share given under the will. (Iowa Code 633.238). (The exception here is if the couple had a valid prenuptial agreement. If the couple is already married, it is too late for that, but that is a topic for another day.)  The elective share is not discussed with most couples during estate planning because the surviving spouse often receives all or most of the assets, which is more than the one-third elective share. The biggest thing to remember about the elective share in Iowa is that the law is unclear as to whether retirement assets or life insurance can be reached by the one-third election. In some estates. that can make a huge difference.

After the long explanation, the conclusion is yes, you can write family members out of your will, but the will needs to be carefully drafted in light of these state law protections.


Reasons You Need a Will

February 10, 2012

Wills do more than just distribute property. A will lets you decide who gets what assets, and also who should take care of your minor children.  Without a will, the state will decide who gets what without consideration of your wishes, or the needs or wishes of the family and friends you leave behind. Here are some of the top reasons to have a will:

1.  Appoint a Guardian for Minor Children

If you have minor children, a will lets you appoint a guardian to take care of your minor children. If parents don’t have a will, the court will likely choose among family members, but don’t you have a preference? By making the decision in a will, you can be assured it’s the person you want to raise your children (or make sure it isn’t someone you don’t want) and you can likely save some family arguments.

2.  Delay Distributions for Minor Children

By state law, any money transferred to a child under age 18 or 21 (depending on the state) must be held by the courts until the child reaches 18 or 21. Then, the child gets the lump sum, free and clear. Would you have wisely spent a lump sum of money at age 18 or even 21? Probably not. A will lets you delay when your children receive that distribution or divide the distribution over a few years.

3.  Appoint an Executor

An executor is in charge of winding up all of your affairs. He or she makes sure all the bills are paid, cancels your credit cards, notifies banks, and terminates any leases. Your executor will also be in charge of finding and distributing all your assets.   This is a good time to make a list of assets you own that others might not know about. Do your children know where all of your retirement accounts are held? Do your parents know where you have bank accounts? That information isn’t necessarily in the will, but can be on a list stored with the will.

4.  Distribute Personal Property

A will controls more than just the house and the car, it can control who gets your Grandmother’s heirloom jewelry and your Grandfather’s stamp collection. Make sure these things go to the relatives that will treasure the items most by putting it in your will. Avoid the “mom would have wanted me to have it” arguments.

5.  Address Non-Traditional Families

State intestate laws are old and typically don’t address non-traditional family situations such as second marriages, stepchildren, children from a prior marriage, or unmarried significant others.  To make sure those people are taken care of, you need a will.

6. Provide for Certain Family Members

You may have certain family members or friends who need more of your support, or certain close relatives you want to exclude. Making a will ensures your property goes to the family and friends you want.

7.  Minimize Estate Taxes

Depending on the size of your estate, a will can be designed to minimize estate taxes. While all property passing to a spouse is tax-free, when the second spouse dies all the property (both husband’s and wife’s) could be subject to tax if over the exemption amount. In 2012, the estate tax exemption is $5.12 million.  Hard to say what the exemption amount will be in future years, but in 2013 it could drop to $1 million. Two people can quickly get to $1 million in assets with a house, cars, retirement accounts, etc.

8.  Support Charities

If you have provided support for a certain charity during your life, you may want that support to continue after your death also. Even if your family members agree to create a memorial fund in your honor, designating a charity or charities in your will ensures the funds go where you want, not where your family wants.

9.  Powers of Attorney

Technically a power of attorney is a separate document from a will, but they really go hand-in-hand, and if you are making a will, you might as well get powers of attorney too. By granting someone power of attorney, you are giving them permission to make certain decisions for you when you are incapable. (That person is your “agent.”) Who will pay your mortgage and electric bills? If you run a business by yourself, how will the bills get paid if you can’t sign the checks? The documents can be worded so your agent can only make decisions when you are medically incapable. Without powers of attorney, a court has to step in to appoint someone to make decisions. That takes time and legal fees. Plus, healthcare and financial decisions can be very personal, don’t  you prefer to pick who makes those decisions for you?

10.  Peace of Mind

Finally, having a will saves everyone a little stress. Not just you, but also the family and friends you leave behind. Having a will ensures your wishes are carried out, the family and friends who depend on you are cared for, and your family won’t have to piece together all the details after you are gone.

Drafting a will isn’t nearly as burdensome or painful as everyone makes it out to be. The sooner you do it, the easier it will be. This list likely has you thinking about some of the most important decisions. Why not do it now?

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