Everyone has a will -- but not a uniform way

Surprisingly, letters continue to question the need or even the desirability of having a will. Many readers may not realize that everyone has a will. If you don't develop your own will with the advice and counsel of your attorney, your state has already drawn one for you. Anyone who dies intestate -that is, without a will -gives the state permission to dispose of his or her assets according to the laws for that state.

Some people have decided not to write a will because of three other widely used means of determining who gets a decedent's property. One alternative is the living trust. A person's assets may be turned over to a trustee while he or she lives. The trustee manages the assets during the person's lifetime and distributes assets after death in accordance with written instructions in the trust. For some people the living trust avoids the delay and expense of probate.

Another supposed alternative is joimt ownership of assets. When one owner dies, the property automatically becomes the property of the survivor(s). While that premise is true, other problems can arise with joint ownership.

A third alternative is available to people living in the eight community-property states. There the community-property agreement conveys all of a couple's community property to the surviving spouse.

A will ensures that one's property will go to heirs according to his or her wishes. A will also permits a person to designate the executor. If minors are involved, a will can designate who is to have custody of children or who is to be a guardian. Generally, thc cost of probating an estate will be less if there is a will to guide the proceedings. For example, a will cannot reduce inheritance taxes. These taxes in some states are payable by the heirs at rates that may be affected by their relationship to the decedent. Most inheritance tax states classify heirs into at least three classes, with significant differences in the exemptions and rates charged to the various classes of heirs. A couple's will may, however, reduce the payment of federal estate taxes at a second death if it establishes a tax-saving trust.

One reader wondered if a will was only needed by a person without property. When one recognizes the definition of a will, this question answers itself. According to the author of one book, "A will is a document which becomes effective upon one's death. It directs how one's worldly possessions are to be divided among the persons named in that will. Generally, a will authorizes an executor to collect assets, pay off debts, and divide one's property according to the decedent's wishes." There is no lower or upper limit on the property that may or should be included in a will. Even if you have no relatives, you should leave a will to direct the disposition of your assets to charities, friends, or others.

People who understand the process may draw their own wills. Some books provide specific instructions and may include the forms used in filing. "Wills for Washington: How to Make Your Own Will," by D. Van Fredenburg, a lawyer (Self-Counsel Press, $3.50), is one example. There may be others, but I am familiar with only one other, a similar book for Oregon. Despite this information, I strongly urge readers to consult an attorney when drawing a will. The cost of making a will is nominal. If legal clinics operate in your area, the cost of making a will is likely to be even less.

Don't be one of the 7 out of 10 people who do not have a will. Income tax questioned

I am over 65 withno dependents, retired, and do not work. My income is from a pension, interest on certificates of deposit, and E bonds, plus social security amounts to to $7,700 yearly, and I wiIl have to pay about $540 income tax. With my rent of $3,600 and increasing yearly, plus my other expenses, I'm spending more than my income. I'm perplexed as to why I shoWd have to pay any income tax. -H.M.

Your social security benefits, of course, are not taxed. Presumably your pension is from a state-funded system. Since you did not pay taxes on those benefits while you were working, they are taxable to you when received. Interest from CDs and Ebonds is taxed at ordinary rates. You are accorded two $1,000 exemptions off your gross income, plus a standard deduction. After that, it is the law that a person with your income owes a tax. Whether you spend more than your income is of no interest to the IRS, because Congress has established the rules and the schedules. When you spend part of your savings, you need not pay tax on those dollars, because they represent capital om which you have already paid taxes once. You may be interested in learning how long your savings will last. A three-page chart with instuctions is available to help you plan these withdrawals to ensure that you will not run out of money. For your set send 50 cents, plus a long (No. 10) stamped, self-addressed envelope, to Moneywise, Box I02, Mercer Island, Wash. 98040. E-Bonds maturing in 1981

I may have a problem owning too many E-bonds which I began purchasing in 1941 . Can I write you about them? -G.H.

Anticipating Mrs. H|s question, I should remind readers that Series E savings bonds purchased during 1941, the first year they were offered, will be maturing 40 years after issue in 1981. Maturities on these bonds are not being extended. Thus when an E-bond matures after 40 years, it will stop drawing interest. These should be either redeemed for cash or exchanged for HH-bonds. If you cash in the E-bonds, all of the accrued interest will be taxed at ordinary income rates. These E-bonds are worth over three times their originai face value, and all of the money received above the original price is income. Exchanging the E-bonds for HH-bonds defers the tax on all accumiulated interest until the HHbonds are later sold or mature without ex tension. Generally, I have been advising people with large holdings of mature Ebonds to liquidate them, pay the tax on the accumulated interest, and invest the cash in some vehicle that returns more than the 71/2 percent interest now being paid. Ebonds should not be redeemed until sometime during the month in which their redemption value has taken a jump. Earlier redemption could lose some accumulated interest, and redemption in a later month will not provide more cash. Questions on IRA rollovers

Regarding a previous "Moneywise" article on rollover of lump sum pension distributions into IRAs, I'm wondering about partial rollovers; I thought all of a lump sum distribution must be rolled over. What is the authority for using more than one IRA to diversify investments? -K.B.

IRS Publication 590, "Tax Information on Individual Retirement Arrangements," clearly states that all or partial lump sum distributions may be rolled over into an IRA. Any part that is not rolled over, of course; is subject to income tax at ordinary rates.

As for multiple IRAs, there is no specific statement that more than one IRA is not possible. Various requiremetn call for separate IRAs, however -as, for instance, the segregation of a company distribution into a rollover IRA to be subsequently rerolled over into a new employer's pension plam. Or the clear separation into two separate accounts when a spousal IRA is established. Further , certain rollovers cannot be combined im a spousal IRA. thus requiring more than one IRA. Since Form 5329, "Return for Individual Retirement Arrangemients Taxes, " must be filed only if penalty taxes are due, there is no reuirement to detail separate IRAs except for entry om Form 1040. any mutual fund that invests largely in stock purchase warrants? --L. L.

One or two mutual funds invest some cash in options, but I kmow of no fund that invests in warrants. If a reader knows of such a fund, please write mie.

Readers are invited to send questions to Moneywise, Box 102, Mercer Island, Wash. 98040. Only questions covering topics of general interest can be answered here, and no guestion can be individually acknowleged. References to specific stocks, funds, or other investments in this column are intended for the general information of readers and not as anendorsement or recommendation by The Christian Sc ience Monitor.

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