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Retirement Weekly

Howard Gold

March 12, 2021, 3:11 p.m. EST

Here’s when you need a will or living trust

Clear instructions and a way to ease your estate’s transfer lighten heirs’ burden


By Howard Gold, MarketWatch


Studio Canal/courtesy Everett Collection
Families can be complicated.

In our last two columns, we showed how you can prepare a do-it-yourself estate plan to transfer your assets to your heirs without a will. We laid out how you can use beneficiary designations and transfer on death forms to distribute your financial assets to whomever you designate. Then, we talked about the different ways a house could be easily passed on to a spouse.

But there are other reasons to have a will, even if you’re not wealthy or don’t have complex finances to sort out.

“Whether you use an attorney or not, the more you can express intent by clear and convincing documentation, the better it is for your survivors,” said Megan Gorman, a tax attorney and founder of Chequers Financial Management in San Francisco.

Read: Avoid these three estate-planning mistakes and make probate cheaper and easier for your loved ones

First of all, if you’re the surviving spouse and own a home outright, you’ll need to spell out who will inherit it when you’re gone. The joint forms of ownership we discussed in our last column apply only to spouses or in some cases domestic partners. Naming a child or grandchild as co-owner is one way to handle it, but it can have tax and other legal implications, depending on where you live.

Also, if you leave a home to your heirs in a will, they’ll get the full benefit of the “step-up” basis on capital gains. So, profits on any sale will be calculated as the sale price minus the recent appraised price (the “step-up basis”) of the home, rather than the original purchase price. That could save heirs tens if not hundreds of thousands of dollars in capital-gains taxes.

Read: Should I do an online will? How to avoid these pitfalls

Then, there’s the other property you own — china, glassware, art, electronics, cars, boats, books, whatever. You may want to leave some items to family members and others to libraries or charitable organizations. The only way you can ensure that the people you want to have these things actually get them is to spell that out in your will.

And there are many blended families these days — people on their second or third marriages, with children, stepchildren, nieces and nephews and elderly relatives to care for, let alone unmarried significant others. A will lets you recognize the important people in your life and can help preserve family harmony if all survivors think they’re getting a fair shake.

Read: Recreating a loved one’s financial life is hard — 5 steps to follow after a death in the family

A will also lets you cut out greedy, malign or dysfunctional people from your estate, but this column doesn’t recommend that: There’s no revenge from the grave, my friends, and you’ll never know what unintended consequences you might unleash on your surviving family after you’re gone. King Lear removed his daughter Cordelia from his estate and that didn’t work out too well for any of them. It’s why Shakespeare called it a tragedy.

Finally, Gorman pointed out, if you’re the parent or legal guardian of minor children, “having a will is really important, because you need to designate guardianship of your children.

“Guardianship is about an alignment of values, and how you want your child raised,” she continued. “People will change their opinions on who they would want to care for their children as they watch their friends and families parent their own children.”

Read: 3 reasons a trust may make sense for your family — even if your name isn’t Gates or Rockefeller

Having a signed and legally witnessed will clears up confusion and disputes that may emerge after your death. I’d advise seeing an attorney but you can prepare simple wills on LegalZoom or other online legal services.

But “in some states, a will is not enough,” said Gorman. “A number of states are now moving to the revocable trust, and that is because the revocable trust can help mitigate the probate process. They do not want every American probating their estate in the court system.” She added that some states are slapping high fees on estates that go through probate or don’t have a living trust.

A revocable living trust gives you full control of your financial assets and real property during your lifetime, as well as providing a smooth transfer of your estate and the privacy you won’t get in probate court, where documents you file are public. The person who sets up the trust (the grantor) appoints a trustee, who could be him or herself, a spouse, a close friend or relative, or an institution, like a bank. The grantor can also appoint a co-trustee who would run the trust after the death of the grantor or the initial trustee.

”You can fund the revocable trust with your assets that are non-beneficiary-designated — your home, your brokerage account, your bank account, can all be in the revocable trust,” said Gorman. The process of retitling assets can be a bit cumbersome and some boards of cooperative apartments in New York City balk at allowing trusts to own shares in the corporations that technically own the apartments. Attorney fees also are higher for setting up a trust than a will.

There’s one final but critical piece of an estate plan — preparing a living will. We’ll get into that next time.

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