No one likes to think about the end of their own life. It’s a tough thing to even wrap your head around! Still, you need to give it some thought, especially if you have assets you want to go to your family. So, what happens to your money if you suddenly die without a will?
Dying Without a Plan
If you pass away suddenly, the ensuing chaos around your estate could be a huge problem for your family. Creditors will try to get what they say they’re owed, the state will step in and appoint an executor, and things will get messy quickly.
Probate Court
If you die with no will and no beneficiaries set up, your assets will go to probate court. That’s bad! Once your assets are there, they can be tied up for months or years with your family battling to sort out who gets what. There are a few easy ways to avoid this, though!
Get a Will
Speak to a lawyer about drawing up a will. This is a legal document that lays out precisely how to handle your estate in the event of your passing. In addition to what should be done with your money, you can also leave instructions for how to handle your burial, what to do with your pets, and so on. Still, assets can end up in probate even with a will in place. The will just makes it more likely that your wishes will be observed after your death.
Make a Trust Fund
A trust is a legal entity that has a trustee, a person selected to handle your assets for your beneficiary. These are extremely important for people who want their assets to avoid probate. They do often come with expensive fees, though, meaning they might not be the right fit depending on your financial situation.
Account Beneficiaries
One simple thing you can do is to just name account beneficiaries for your bank accounts. These beneficiaries can’t access your money until you pass away. In the event of your death, they’d get full access to your finances, preventing them from going through costly and time-consuming probate battles.
Poor Man’s Trust
One form of beneficiary naming is called “payable on death,” in which your beneficiaries simply get all of the funds in your accounts, savings bonds, CDs, and security deposits. Another is called “transfer on death,” which allows stocks, bonds, and brokerage accounts to go to a beneficiary. These are called “poor man’s trusts” by some, as they function like trust funds without the fees.
Joint Account Holders
Another option can be to add people as account holders to your accounts. They will be considered joint tenants with rights of survivorship, meaning they’re legally the main holders of the account in the event of your death. Notably, you should only do this for people you really trust, as they’ll have access to your account while you’re alive.
No Heirs
If you pass away without a will, trust, or joint account holder and you have no heirs to receive your estate, the state takes your money. This is why it’s important to make plans for what happens to your estate. Make sure the money goes where you want it to, such as to a caretaker, a friend, or a charity.
Avoiding Probate
Simple estates almost never end up in probate if you simply set up a payable on death or transfer on death account. People with complicated estates, however, will likely need to leave their assets in a trust in order for their families to receive the finances without them being tied up in probate court.
Read More: 10 Reasons You Need a Financial Advisor
Taxes
Usually, estate taxes don’t apply in normal cases. Federal estate taxes kick in with values a bit under $14 million. Gift taxes, on the other hand, apply if you give someone a gift worth more than $18,000 while you’re still alive. This is why many wealthy people simply keep their assets in a trust for their children rather than gifting them wealth outright.
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