by Archie M. Richards, Jr., CFP^®
October 8, 2001

Michelle writes, "My father, who's almost 74, absolutely refuses to write a will. He and my mother, who's 63, own a home worth $175,000, free and clear. They have $300,000 in Treasury bonds and $750,000 in a 401(k) Plan. When Dad dies, will estate taxes cut Mom's nest egg in half? I need to know, to plan how much to save for her support."

Your Mom should be okay, Michelle.

If your Dad dies without a will, he is said to have died "intestate," meaning that he hasn't given a testament of his will. Your state's law of intestacy would take effect. The laws of many states provide that the decedent's property be apportioned between the surviving spouse and the children, especially if the children are minors.

You're not a minor, of course, but if you happen to inherit property you would prefer your mother to receive, talk with an attorney about disclaiming the inheritance. The property would pass as if you had predeceased your Dad. If your mother thereby inherits, the disclaimer would have served its purpose.

But the laws of intestacy apply only to property that the decedent held in his or her own name. Spouses often own their house in joint name with the right of survivorship. When one spouse dies, the other immediately becomes the sole owner. The law of intestacy has no effect, and neither does a will. The joint ownership takes precedence. Ask your Dad to show you the deed for the house. If the ownership is in joint name, your Mom is home free.

While you're at it, also ask to see the statement showing his Treasury bonds. If the account is registered in joint name, your mother will be okay on that score as well.

The property in the 401(k) plan is owned by a trustee, probably a bank or an insurance company, on behalf of the plan beneficiaries. Your Dad is required to specify who becomes the beneficiary in the event of his death. The chances are, he named your Mom. Ask your father to show you the paperwork. Otherwise, write the trustee to find out the named beneficiary. Again, this designation would take precedence over your state's law of intestacy and over any will.

Some people feel that drafting a will is like giving up on life. Since your father is so intransigent about a will, he may be asserting his desire to live. But he may know in the back of his mind that your Mom will be okay.

Concerning estate taxes, let's assume that your mother inherits the whole shebang - $1,200,000. There could possible be modest state inheritance taxes. But for federal purposes, property passing to a spouse, during life or at death, is a marital deduction. This would reduce your Dad's taxable estate to zero, causing no federal estate tax at all. Your Mom would be a millionairess!

But what if your Mom dies first? What if either parent becomes incapacitated? How about saving estate taxes when the surviving parent dies? To deal with these issues, and others as well, your father should see an estate planner about a living trust.

Having read my columns about exchange-traded funds, Lou asks where he can find a list of them.

I am writing a book about exchange-traded funds for McGraw-Hill, Lou. To be published in 2002, the book will become part of McGraw-Hill's "All About" Series on investments.

There are over a hundred ETFs. The Wall Street Journal has a section entitled "Exchange Traded Portfolios," usually on the page showing American Stock Exchange trading. You'll also find information at www.amex.com, www.ishares.com, www.streettracks.com, and www.holdrs.com. There are other Web pages, but that'll do for now.

Do not be enticed into trading ETFs. Buying and holding remains the best way to go.

Government subsidies of faith-based charities are ruinous. The federal funds would eventually come with strings attached. Charities would be guided by efforts to increase the federal handouts, not by their judgment and faith about how to best use their money.

The higher people's after-tax income, the greater the charitable giving. Until May 3, 2001 , the American people worked exclusively to pay for government. Can't we make Tax Freedom Day earlier than this?