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Don’t make the big real estate mistake

“Dad, what happens to your guitars when you die?”

My daughter has a habit of asking jarring questions like these, especially when she can’t get over the urge, inscribed in our house rules, not to disturb me in my office during business hours, unless it’s an emergency.

That is almost always. The first time he asked that question, he didn’t have a ready answer. After all, it is difficult to explain the concept of “succession” to a 7-year-old.

But now I have an answer for her … one so simple that even a child can understand it.

The testamentary well

Succession is the mandatory legal process when a person dies. He takes an inventory of your assets, ensures that all of your debts are paid off, and distributes the rest to the heirs designated in your will.

However, if you did not leave a will, each state has its own rules that define who is entitled to receive your property and how much. This “intestate” probate process can be lengthy, during which your heirs have nothing, sometimes not even access to your life insurance proceeds. Most states have minimum periods in which creditors can respond, during which your estate cannot be distributed.

Succession is expensive too. There are attorney’s fees, executor’s fees, court filing fees, and other costs. Many states set these fees as a percentage of the value of your estate. Others allow attorneys to charge an hourly rate, subject to court approval of their “reasonableness.” That can spell big trouble if the probate judge is a golf partner of your parents’ attorney.

Do you need a will?

You’ve probably heard that musician Prince died intestate recently. Many people are incredulous that he forgot to write a will, especially since most of his estate is the publishing rights to his music, valued at around $ 300 million.

Prince’s reluctance likely had something to do with his almost irrational dislike for contracts, even a will, which is basically a contract with his deceased future self. But Prince was one of the 55% of Americans who die without a will.

In some cases, that makes economic sense. If you have little to leave behind, a will could cost more than probate. If you don’t have instructions for your remains or messages to deliver to your heirs, another function of a will, then maybe you can do without.

On the other hand, anyone smart enough to sign up probably needs a will. That’s because it’s not just the Size of your heritage what matters … also what is in it is essential.

If you have more than one bank account, a house, and some personal possessions, a will is essential to ensure some control over how those assets are handled after you are gone. For example, if you own a business and your heirs cannot agree on whether to keep it running or collect for it, a probate judge may order its sale so that it can be divided according to state law.

In my case, property ownership in more than one country, multiple investments, and a collection of valuable musical instruments make it a no-brainer.

Is a will enough?

Here’s a simple rule of thumb: If the value of your and your spouse’s estate is greater than the combined gift / estate tax exemption, currently $ 10.86 million ($ 5.43 million x 2), then you need more than a will. In that case, you must remove some of your assets from your estate … but still make them available to your heirs.

For example, the death benefit from a multi-million dollar life insurance policy will be included in the value of your estate. Many people are surprised to find that their parents’ insurance, investments, property, and other assets put them in inheritance tax territory … which is expensive and complicated.

If you have long-term investments with unrealized capital gains, for example, upon your death, the appreciation of those investments from the date of purchase will be considered income for wealth tax purposes, even if it is not actually recognized. liquidate. That could mean that your heirs have to liquidate something else, for example, the family home, to avoid having to sell valuable shares.

In such cases, you would benefit from an irrevocable trust to receive certain assets (either before or at the time of your death). These assets are excluded from the calculation of your equity. Such a trust could even be the beneficiary of your life insurance policy, keeping it out of your estate as well … and out of the estate, since the trust’s assets are not yours.

Prosperity in the Hereafter

Some people rely on faith to fulfill their wishes for the future. I am not one of them. Faith always has a role to play, but when it comes to your heirs, nothing beats a good old-fashioned contract with yourself: a will.

After all, we don’t know the day or time …

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