Since estate planning is a very sensitive topic and often raises more questions than answers, in this and my next posts, I decided to talk in more detail about each estate document that I mentioned in my last post. My goal is to provide more reasons that will support a real wake-up call for you to stop putting off dealing with estate planning, thereby taking on an unnecessary risk.
As a quick refresher, last week I talked about the five most important estate documents that I believe every adult must have in place. Four documents are mandatory and one is optional. The mandatory documents include a Will, a Health Care Proxy, a Living Will, and a Durable Power of Attorney. The fifth document, a Revocable Living Trust, is optional as the need for trusts often depends on which assets you own. That is why it’s highly recommended to talk to an estate planning attorney and a financial advisor to determine whether you need a trust or not.
Last Will and Testament, also known as a will, is a legal document that states your wishes on how to disburse your assets after your death. Some common examples of assets include real estate properties, bank accounts, investments, cars, ownership interest in a business, and more. If you die without a will, intestate, your state will appoint a representative that will decide how to disburse your assets. This can create an emotional and financial pressure on your loved ones.
If you die without a will your state will appoint a representative that will decide how to disburse your assets.
7 Key Reasons Why You Need to Have a Will
Protect your assets and distribute them in accordance with your wishes. As I mentioned already, if you pass away intestate, the state will decide how to divide your assets. In other words, your wishes may not be carried out. Since a will is a legally binding document you, you can decide who gets what and when.
Disinherit people out of the will. A will can also allow you to specify certain individuals that you don’t want to receive an inheritance. For example, you may disinherit your ex-spouse.
Assign legal guardians for your minor children. Should you and your spouse accidentally die without a will, the state will determine the guardian for your minor children. By having a will, you can assign your legal guardians in advance and protect your children from psychological trauma by making sure that they are raised by someone who they know, love, and trust.
Save your family time and help to get access to your assets faster. Probates are lengthy processes that can take up to 6-9 months. In some cases, it may be even longer. Having a will can expedite the probate process as there is no second-guessing for the court on how to distribute your assets.
Reduce estate taxes. By drafting a special type will, you can transfer your assets into a trust and significantly reduce estate taxes.
Provide instructions for your digital assets. You can assign a personal representative who will manage your digital assets or leave them to specific people. Some examples of digital assets include, Venmo or Paypal funds, cryptocurrency, and a website.
Support your charity. If there is a certain cause or charity that you support, you can leave a portion of your assets to that organization by specifying it in a will. Gifts in the amount of up to $15,000, are excluded from estate tax.
If you don’t have a will yet, I’d suggest preparing one as soon as possible and don’t leave it to chance falsely believing that you still have plenty of time. The good thing is that if your estate is fairly simple, a will can be drafted relatively quickly, and often for free using a specialized software. But you must always remember that a will is a legal document and it must be drafted correctly.
Every will must cover the following four elements:
Every will starts with identifying certain assets, specific gifts, that you would like to leave to your heirs after all debts are paid. You can leave cash gifts, personal belongings, real estate, financial accounts, or digital assets. Personal belongings include such things as vehicles, jewelry, art, collectibles, or other items. When adding a gift, try to be as specific as possible but don’t include any sensitive information, such as your bank account or routing numbers.
Beneficiaries to your life insurance policies, retirement accounts, and joint tenancy assets take precedence
After you identified a list of specific gifts, it’s time to name your beneficiaries, or people who will be getting your gifts. Usually, beneficiaries include close family members but you can also name friends, charitable organizations, or even a pet.
Once you assign beneficiaries to your specific gifts, you can then assign beneficiaries to the remainder of your estate. The remainder of the estate is what is left after paying off debts and making specific gifts. Usually, the remainder of the estate goes to a surviving spouse. If you decide to go that route too, please be sure to specify how you would like to distribute the remainder of your estate if your spouse does not survive you.
Another is important task is to assign an alternate beneficiary in case you outlive a listed beneficiary. Without the alternate beneficiary, the bequest will be distributed evenly among the other listed beneficiaries. For example, let’s say you have a sister Emma and want to take care of her and her family. You list Emma as a beneficiary for $100,000. If you outlive Emma and didn’t assign an alternate beneficiary, say Emma’s husband Peter, Emma’s bequest, will be distributed among other listed beneficiaries and her family will not be taken care of.
Assigning beneficiaries is a very important step, so take your time and thoroughly think it over.
3. Personal Representative
A Will must have an assigned personal representative, a person who will be carrying out your wishes. Your personal representative is also known as an executor or agent. If an estate isn’t too large or complex, many people often go with a relative or a close friend.
When deciding who your personal representative will be, keep in mind that most states require a personal representative who lives in your state. In addition, we all live in the digital age where almost everything is stored online. I highly recommend that you pick your personal representative among tech savvy people. Finally, before you assign a personal representative, make sure to notify that person of your selection and discuss potential details of the distribution process.
Naming guardians is even more important than naming a personal representative because a legal guardian is someone who will take care of your minor children when one parent passes away. If your children’s other legal parent survives you they will be the legal guardian by default. However, if both parents die in an accident, you need to be prepared and clear who will take care of your minor kids. Choosing the correct legal guardian isn’t easy and shouldn’t be taken lightly. The very first choice usually falls on grandparents and uncles/aunts – someone your children know very well and trust. But often the choice may fall to a friend whose beliefs and values you admire and would like your children to develop into. Like with a personal representative, make sure to notify the desired guardians that you would want to list them as a guardian.
By the way, when you create a will, you also can leave an additional gift to your guardian which will be taken into consideration before the remainder of the estate is disbursed.
When Should You Have a Will?
In the majority of states, you can create a will any time after you turn 18 years old. However, there are two exceptions. If you live in Louisiana, you can create a will at the age of 16. For those who live in the state of George, a will can be created as early as 14 years old. Another good reason to create a will is when you have a change in your family structure, such as being married or having a baby.
A will isn’t a “set it and forget” thing. As your life evolves, most likely you would need to update your will too. Your current version of the will supersedes all other versions – that is why it is important to update it regularly and keep old copies too. Whether you created a new will or amended an existing one (called a codicil), depending on your state, you need to either have two witnesses to watch you sign it, or to have it notarized.
Where to Store a Will?
As for storing you will, you must be very considerate and careful. Avoid bank safety deposit boxes as your loved ones would need to get a court order to access it. The best way to store a will is an accessible fireproof safe in your house. Just make sure to notify your personal representative on its location and access information, such as a passcode.
A will is the core document of your estate plan and without one, you put your estate at serious risk and leave important decisions about your assets and children up to a state court. But if you have one, you take control of your after life, and can be confident that your assets and cherished possessions will be handled the way you designate. This includes not only the distribution of your assets, but also the protection and caring of your loved ones even when you no longer are with them. And when you know that your loved ones are protected and taken care of, you get a peace of mind too.