What If You Don’t have a Will?

Studies suggest that a majority of adults do not have an estate plan of any kind, even a will.  The issue of what happens when a person doesn’t have a will comes up frequently in our practice.  The answer to the question, which is what I’ll discuss here, provide lots of reasons to have one.  You can see a recent article entitled “Placing the puzzle pieces of long-term care and planning a will” from Pittsburgh Post-Gazette for a bit more background, although state processes vary.

First, a will is a written document stating wishes and directions for dealing with the property you own after your death, also known as your “estate.” When someone dies without a will, property is distributed according to their state’s intestacy laws. If your next of kin is someone you loathe, or even just dislike, they may become an heir, whether you or the rest of your family likes it or not. If you are part of an unmarried couple, your partner has no legal rights, unless you’ve created a will and an estate plan to provide for them.

Intestacy rules vary greatly from state to state, especially in a community property state like Texas.  In general, intestacy laws distribute property to a surviving spouse or certain descendants. A very common exception, which many people don’t know and are surprised to learn, is that if you have children from outside of the current marriage, not everything goes to that spouse.

While practicing in Pennsylvania I actually had a situation in which one spouse died young without children and with living parents.  Not everything goes to the spouse in that situation, but instead, partially to spouse and the rest would have been divided between the surviving spouse and parents.  The surviving spouse was not pleased to learn that.

This may also lead to a difficult result for the beneficiary.  If they have disabilities and are using government benefits, receiving the inheritance may cause them to lose those benefits, which may be critical for that person’s care.  Wills and other estate planning documents can prevent that outcome.

If you don’t have a will, at least in Texas, it may be necessary to have a proceeding to determine who the heirs even are.  This is called an heirship proceeding and can be quite expensive as the court appoints another attorney (who you pay) to look for unknown heirs.  This whole process also adds time and uncertainty to a process which is already difficult due to the loss of a loved one.

Additionally, a will designates a person to handle the estate, often called an executor, and typically names successors should the first named person be unable or unwilling to serve.  In the absence of these directions, the heirs will have to figure it out among themselves, hopefully amicably and without litigation.

Many states also have limited proceedings that may or may not be helpful when a person doesn’t have a will.  For example, Texas has affidavits of heirship which can address retitling of land interests, such as the house.  However, that won’t help for bank accounts.  Pennsylvania actually has a rule permitting small bank accounts to be distributed to next of kin after the funeral is paid.  That too may help, unless the account is $10,000.  Many states have small estate proceedings that can work, but in practice are often cumbersome.

A much better solution: speak with an experienced estate planning attorney to have a will and other estate planning documents prepared to protect yourself and those you love.

Start by determining your goals and speaking with family members. You may be surprised to learn an adult child doesn’t need or want what you want to leave them. If you have a vacation home you want to leave to the next generation, ask to see if they want it. It may reveal new information about your family and change how you distribute your estate. A grandchild who has already picked out a Ferrari, for instance, might make you consider setting up a trust with distributions over time, so they can’t blow their inheritance in one purchase.

Determining who will be your executor is another important decision for your will. They are a fiduciary, with a legal obligation to put the estate’s interest above their own. They need to be able to manage money, make sound decisions and equally important, stick to your wishes, even when your surviving loved ones have other opinions about “what you would have wanted.”  See this article for further ideas:  https://www.galliganmanning.com/what-are-the-duties-of-an-executor/  

If there is no one suitable or willing, your estate planning attorney will have some suggestions. Depending on the size of the estate, a bank or trust company may be able to serve as executor.

The will is just the first step. An estate plan includes planning for incapacity. With a Will, a Power of Attorney, Medical Powers of Attorney and other documents appropriate for your state, you and your loved ones will be better positioned to address the inevitable events of life.

Reference: Pittsburgh Post-Gazette (April 24, 2022) “Placing the puzzle pieces of long-term care and planning a will”

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How to Claim and Use Life Insurance

Many people have life insurance, and they have it for a multitude of reasons.  These include funeral costs, liquidity in an estate, help paying off taxes and so on.  Whatever your reason for having it, I wanted to talk about how to make a claim on it, and separately, what to do with it once you have.  You can see more at Kiplinger’s recent article entitled “What Is the Best Way for a Widow to Use Life Insurance Proceeds?”

When making a claim, you’ll need a couple of things.  First and foremost, perhaps blindly obvious, is that your beneficiaries need to know you have it.  If an insurance company becomes aware of a death they might reach out to named beneficiaries, but that is a big assumption.  So, your life insurance beneficiaries or whoever may claim the insurance needs to know it exists.

Holding that aside, the person entitled to the money will start by contacting the insurance company.  The company will send or direct that person on where to download a form to claim the insurance.  Beneficiaries typically need to provide proof of who they are, a death certificate for the insured (which in most places is issued within a few weeks of death) and other information about how to pay the insurance.  For example, some companies ask if you want to turn it into an investment fund at their financial institution, others arrange how to cut the check and so on.

It is worth noting that your executor or trustee won’t have the right to do this unless the estate or the trust is the beneficiary of the life insurance.  All told, the process typically takes something like 30 days.

Now, what to do with the insurance proceeds varies based upon the purpose and need of the life insurance.  I’m also going to assume for now that the insurance isn’t being paid to a trust which is designed to hold assets long term such as a descendant’s trusts.  That might have different concerns.

So, with that said, here are some ideas on how to use the life insurance.

Funeral Costs. Use life insurance money to cover these costs to decrease your financial strain.  Most funeral companies actually have you purchase a small insurance policy in order to prepay a funeral.

Ongoing Expenses. This is especially true when one spouse dies, but living expenses do not stop. Your income is frequently reduced. In fact, after the death of a spouse, household income generally declines by about 40% due to changes in Social Security benefits, spouse’s retirement income and earnings. The death benefit from a life insurance policy can help provide the funds you need to help cover your mortgage, car payment, utilities, food, clothing and health care premiums.

Debts. You are generally not personally responsible for paying off the debts of the decedent. However, when an estate does not have enough funds to pay all the debts, any gifts that were supposed to be paid out to beneficiaries will most likely be reduced. Note that you may be responsible for certain types of debt, such as debt that is jointly owned or a loan that you have co-signed. Talk to an experienced estate attorney to understand the laws of your state, so that you know where you stand concerning all debts.  By way of example, you have very few responsibilities to pay a decedent’s debts in Texas.

Taxes.  As a tie-in to debts, some people use life insurance to give an influx of liquidity to pay estate taxes.  This often helps when an estate is large due to real estate or businesses or other illiquid assets.  The IRS of course wants the tax paid in cash, so life insurance gives you the cash to do so without liquidating other assets.

Create an Emergency Fund. Life insurance can help build a liquid emergency fund, which should cover three to six months of expenses.

Supplement Your Retirement. When one spouse passes, the survivor becomes much more economically vulnerable. To retire, a person typically needs 80% of their preretirement income to live comfortably.  So, insurance provides and extra supplement to cover that need.

Reference: Kiplinger (Dec. 17, 2021) “What Is the Best Way for a Widow to Use Life Insurance Proceeds?”

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Golfing May Reduce the Risk of Dementia

Leisure-time exercises like golfing may reduce the risk of dementia for older men according to a recent study.

Depending on who is reading this, you are either going to be thrilled with me, or angry at me for giving an excuse to someone.  But, we here at Galligan & Manning value the health of our clients, and with that, I want to share the results of this important study.

Older men now have a great excuse to spend more timing golfing.  A recent study suggests playing golf may cut the risk of getting dementia according to The Daily Mail’s recent article entitled, “Playing GOLF could cut your risk of getting dementia by a third, study claims.”

Men 60 years and older who regularly exercise at a ‘leisurely’ pace, such as golf, were up to 37% less likely to be diagnosed with the disorder, a Japanese study found. Experts say this may be due to the quick mental calculations done when lining up a putt or avoiding a bunker which may help prevent cognitive decline. Researchers also say the social aspect of playing golf with others may help stave off dementia, in addition to the benefits of physical exercise. However, this effect was not found for women who played more games of golf or other similar activities, like tennis or gardening.

Previous research has suggested factors like social isolation also increase the chances of getting dementia, with a lack of personal interaction with others a key risk factor. I’ve read other studies which examined towns with an abnormal number of individuals who reach 100 years of age.  Those studies similarly found that social interaction in those towns (small, tight-knit communities) encouraged long-term health.

In this study, researchers at the Center for Public Health Sciences in Tokyo reviewed survey data collected between 2000 to 2003 from 43,896 Japanese seniors. On average, they were aged 61. The survey participants were asked to detail their average levels of daily activity. Each activity was given a score, based on the energy expended doing a task. These scores were then compared to dementia diagnoses logged between 2006 and 2016.

A total of 5,010 participants were diagnosed with the condition during this time frame. The results showed no clear link between moderate to vigorous exercise and any reduced risk of dementia. However, further analysis of the same set of data showed men who did lots of ‘leisure-time’ exercise were at less risk of the disorder. Men in the top 25%— in terms of the amount of leisure-time exercise they carried out — were 37% less likely to have dementia three years after being surveyed. This risk reduction remained even after other risk factors like smoking status, alcohol intake and BMI were taken into account. Nine years after being surveyed, the more active men were 28% less likely to have a dementia diagnosis, compared to the least active.

Lead author Dr. Norie Sawada suggested leisure activities, like golf, may help older man stave off dementia through both the mental calculations required to play and the social aspect.  It is encouraging too that an active lifestyle (“leisure-time exercise”) can help without requiring extreme or vigorous exercise as we age.

Dr. Sawada also noted that ‘the social activity that accompanies leisure time physical activities, such as participation in golf competitions and enrollment in tennis circles, also has a protective association against cognitive decline and dementia.’

There is no precise way to prevent dementia. However, experts say that maintaining a healthy heart through regular exercise and eating healthy foods helps reduce the risk of the condition, and if golfing helps, so be it.

As to why women in the study did not enjoy a reduced dementia risk, Sawada thinks that they may already be getting similar benefits from their everyday activities, compared to men.

So, if there is one thing you do to help your health this weekend, let it be golfing!

Reference: Daily Mail (March 29, 2022) “Playing GOLF could cut your risk of getting dementia by a third, study claims”

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