Dear Quentin,
I have a 72-year-old friend who is declining with chronic obstructive pulmonary disease (COPD). She got divorced 4 years ago. She has a 32-year-old son. Does she need a will? She has not written a new will since the divorce.
Will this cause issues when the son tries to settle her estate after she passes? I told her she should get a will to simplify things for her son. She said everything passes to him so she doesn’t need one. He is already on her bank accounts.
What are your thoughts?
Supporter of Wills in California
Related: My late husband’s parents left me nothing in their will. Am I wrong to think they are thoughtless?
You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com. The Moneyist regrets he cannot reply to questions individually.
Dear Supporter,
There could be a stick of dynamite in her estate plan. If she has made a will while she was married, she should update that today because everything that is not nailed down with beneficiaries will go to her ex-husband if she has named him as her heir in her will. (Beneficiaries trump wishes expressed in a last will and testament.)
This Moneyist reader’s father died leaving an old will that left everything to his third wife. There was one problem, however. He had a fourth wife! As I told him: The order of merit for his father’s estate: (1) primary beneficiaries, (2) secondary beneficiaries and (3) those mentioned in his 2019 will and his fourth wife. A messy outcome.
Your friend is giving her son more work and leaving her estate in limbo if she doesn’t make a will, and dies intestate, assuming there was no prior will. That means her estate will be divided up per the laws of her state (going to her son, given that he is her only child). But this could take a year or more. Does she want to put him through that?
The probate process is public, the legal equivalent of washing your dirty linen in the front yard.
Another complication for your friend: The probate process is public, the legal equivalent of washing your dirty linen in the front yard. In addition to an administrator/executor, she will need a trust and estate attorney to navigate the process. You’d be surprised by the mistakes people make when writing a will, including forgetting to sign it.
There are other ways to bypass probate. A transfer-on-death deed means your friend’s house becomes her son’s after her passing, if she names him on that document. It works in the same way as a beneficiary on a bank account or insurance policy. It is an alternative to putting you on the deed, which would rob him off a full step-up in basis.
As for making a will for whatever remains in the estate, hire a lawyer. State laws vary on this issue. For example, California law does not require an attorney to create your will or trust. “Meeting those requirements and creating a plan that actually accomplishes your goals are two very different things,” says the Casiano Law Firm in San Diego.
California has rules about witness requirements, signature protocols, and language for documents to be legally binding, the law firm adds. “More importantly, the state has complex laws about community property, homestead exemptions, and tax implications that can dramatically affect how your assets pass to your heirs.”
Don’t miss: ‘I think we’ve been lied to’: Who exactly is considered rich in America?
Trusts and powers of attorney
There are also legal means for disinheriting family members, and failing to include proper ‘no contest’ clauses can lead to expensive litigation, it adds. “If you’re making unequal distributions or excluding family members, the language you use becomes crucial to preventing successful challenges to your plan.”
Holographic or handwritten wills are only legal in about half of the states in the U.S. (California happens to be one of them). Even so, write your will under the guidance of a trust and estate attorney. It’s simply not worth writing a will on the cheap or downloading one from the Internet. Too many things can go wrong.
Finally, make provisions for what happens while you are still alive. Arguably, this is even more important than writing a will or setting up a trust, for your friend, your good self and anyone else reading this column. Name a power of attorney to make financial decisions should you become incapacitated, and medical power of attorney.
It’s simply not worth writing a will on the cheap or downloading one from the Internet. Too many things can go wrong.
If your friend sets up a revocable trust, she can be both grantor and trustee during her lifetime, and have the freedom to change the terms. She can leave instructions to distribute the assets held by the trust according to her wishes. Those wishes may change. She can retitle your home, bank accounts and other assets into the trust.
There are limitations to a revocable trust. It cannot be used to make medical decisions during her lifetime, protect her from civil judgements or creditors or help her qualify for Medicaid, the program that provides medical care for low-income Americans. A trust can be expensive to set up and comes with ongoing administrative and legal costs.
A revocable trust becomes irrevocable upon your death. However, she could add a “trust protector” clause — a third party that oversees the actions of the trustee. The American Bar Association says they can correct mistakes made in a trust or modify it to take advantage of tax law. They can also approve accounting and compensation.
If your friend has a valuable piece of jewelry she may wish to bequeath those to a sister or aunt or niece. And she can also name donations to her favorite charitable organizations in her will. The purpose of making a will is to ensure that your wishes are upheld, and also make the time after your passing easier for loved ones.
Don’t miss: ‘I fear a significant decline in the S&P 500’: Do I sell my tech stocks before it’s too late?
Check out the Moneyist private Facebook group, where members help answer life’s thorniest money issues. Post your questions, or weigh in on the latest Moneyist columns.
Previous columns by Quentin Fottrell:
By emailing your questions to the Moneyist or posting your dilemmas on the Moneyist Facebook group, you agree to have them published anonymously on MarketWatch.
