November Greetings

As I write this month's newsletter, the weather outside is turning decidedly Novemberish. Cool, wet, and windy, it makes you think that maybe something more harsh is just around the corner.

It's a similar feeling that I get as I see the market headlines - housing starts are way down, oil prices way up, market going sideways to down a little - it just makes you think something more harsh is in the offing. Much the same as we know that there is a Spring around the corner and we know that there will be some chilly winds to endure in the short term, I think that our present market outlook is not nearly as bleak as all of the signals seem to indicate. Granted, we're going to have to endure the "chill" of higher fuel prices and the "ill winds" as the housing market rights itself, but all in all, before you know it, this "winter of discontent" will be past us and we'll soon see the sprouts of new growth in our investments. If you're sufficiently diversified throughout the market, now is a good time to begin to snuggle in for a winter's sleep - relax, and get out a good book to enjoy by the fireplace.

In this month's newsletter, I'll cover the benefits of having a will in place. I think you'll learn something here - and maybe it will get you motivated to take some action.

Do You Have The Will?

Statistics show us that approximately 70% of all Americans don't have a valid will. Are you one of them? Chances are, you are. If you do have one, chances are that in a circle of four people, three don't have a will.

This situation begs an obvious question: Do I need a will? You only need a will if you can't truthfully answer "No" to both of the following questions:

Do you care who gets your money and property when you die?
Do you care who is appointed guardian of your minor children if you die?

If you answered "Yes" to either or both of those questions, you need a will! Otherwise, state laws will determine the outcome of those situations - and it's not likely that you would have made the same decisions that the state would.

Why should you have a will?

A will is appropriate for anyone, not just the rich, no matter how much money or property you have. A will is your instructions for how you'd like your belongings and assets distributed at your passing. Without a will, the courts will decide to whom these things go, without regard to your wishes. The courts, according to state law, have a specific succession path that they will follow in distributing your assets - not understanding that you loaned some money to your first child when they purchased their home, and as such you had intended to "equal things out" with the other two kids at your passing, for example.

In addition, anyone with children, especially minor children, must have a will. Only you (and presumably your spouse) should be making the decisions about who will care for the children as their guardian in the event of your untimely passing. No one wants to think about death as a near-term event - but it happens every day. If it should happen to you and you don't have a will in effect, your family and loved ones will be thrown into a confusing world of decisions that they aren't prepared to make, on top of the very difficult situation that they already have in dealing with your death.

A third benefit of a will is tax benefits. By utilizing your will to pass along your assets that have grown in value through the years (as opposed to making gifts during your lifetime), your heirs will receive the property at a "stepped up" value as of the date of your death (in most cases). For example, let's say you own a piece of farmland that you purchased for $10,000 many years ago. Today, the land is actually worth something like $150,000 due to appreciation in land values. If you were to give this land to your son as a gift during your lifetime, and the son sold the land, he would owe capital gains tax on $140,000 (the growth of the value of the land), which would amount to something like $21,000 at a 15% rate. On the other hand, if you bequeathed the property to your son via your will (assuming that your overall estate was worth something south of $2 million), then there would be no tax owed, either on the transfer of the property or when your son sells it. This is because the act of inheriting property causes a "step up" in the value of the property, and so the tax basis of the property is $150,000, leaving no capital gain to tax (assuming again that the son sells the property for $150,000).

So - how do you get started? As mentioned above, there are a few things you need to consider when setting up a will. The most difficult decisions generally surround the idea of guardianship for the children. Think through this decision carefully, along with your spouse (if you have one), and then talk to the person or persons you've chosen. I generally recommend that you choose a guardian and a trustee to manage funds that have been set aside for the children's care - this way you have a separation of powers, and two heads working together for the benefit of the kids. In addition, many times if there is only a guardian who has the additional duty of administering funds, the guardian may tend to over- or under-utilize the funds on the children's behalf, and having a separate trustee to help with this process can make sure that the funds are used as you directed.

The second person that you need to name in your will is an executor. This individual will be responsible for administering your will and your estate when you pass. Depending upon the circumstances, this person may need to be very skilled in working with others (your beneficiaries) to ensure that your instructions are properly enacted.

The specific instructions that you wish to have carried out completes the picture. In some cases, especially those including children, you'll want the will to establish one or more trusts, requiring the naming of a trustee. This will help to ensure that your funds are used as you direct. You'll also need to think about how the rest of your assets, money, and property might be distributed.

Start by gathering the names, addressses and dates of birth for you, your spouse, your children, other beneficiaries, your proposed guardian(s), and your proposed executor(s). I used plurals for guardian(s) and executor(s) because it can be very helpful to have "backup" people named for the event of your original choice's predeceasing you.

Next, gather together your debt information - mortgages, car loans, credit cards, student loans, and any other loans you might have. Then list your assets - property, stocks, bonds, accounts, homes, personal property, etc.. Take pains to specifically identify each item of debt and assets, so that it is very clear which item you are referring to.

Lastly, gather copies of other existing legal documents, including divorce decrees, prior wills, trusts, prenuptual agreements, and any other document that might affect the legal distribution of your assets.

When you talk to your attorney, he or she will likely have other items that you need to gather, but this should head you in the right direction. And I do advocate using a lawyer - this is much too important for a "do-it-yourself" job. When you think about the consequences of doing it incorrectly, the cost for the attorney is a pretty small sum by comparison.

So - if you happen to be "one of the other three" in the circle of four, don't delay. There's no sense in putting your family and beneficiaries through the court system if you can help it - and you can. If you have the will.