News that Prince died leaving an estate probably worth hundreds of millions of dollars and no will was stunning. Does this cautionary tale mean that we all need wills? The answer is maybe, and then again, maybe not, according to financial planners.
The problem for average people who are not mega rock stars is not that they fail to make out a will but that they fail to keep beneficiary forms up to date. Beneficiary designation forms are used to transfer assets held by most people who are not wealthy.
Most of us have 401(k) plans, retirement accounts and life insurance. Some of us own jointly-held bank accounts or homes. These and even brokerage accounts can be passed to heirs through beneficiary forms.
Financial planners say many of us forget to change beneficiaries as time passes. Workers just starting their careers may put their parents as beneficiaries on a retirement plan. Then they forget to update designation forms when their parents die. Former spouses may stay on the beneficiary forms after a divorce.
While relying on beneficiary designation forms allows most people to pass along most of their assets, the strategy does not meet with approval from all financial advisors. Planners who have wealthy clients with complicated assets say they need more extensive estate planning. Cost is now always the issue.
A simple will can cost only 500 to $1,000, they say. A basic estate plan that could cost about $5,000 for a married couple might include two wills, two revocable trusts and an advanced directive. The end-of-life document would give power of attorney to someone who could handle your financial affairs if you are incapacitated. It would also give someone power to tell your doctors about the health care you would want.
Financial planners point to taxes and protecting assets when they say the ultimate expense of avoiding estate planning by leaving no will or relying solely on beneficiary designation forms can be far higher.
With all of these options, the best advice is to find a comprehensive adviser who can make sure you have a plan in place and the needed estate documents and forms. That’s particularly true for single people who don’t think they need to address estate planning because they have no spouse or children to protect. If you are not married, it is not obvious who you would want to make decisions and you need to spell things out.
Most states have laws setting out genealogical inheritance when single people die intestate or without wills. The line usually goes from a longtime companion to nieces and nephews, and then to brothers and sisters, followed by parents, other relatives, and then friends, say estate planning experts.
When people do not specify their intentions, their estate can go to distant relatives they may not know or like.