Do you have a will? Sure, people are living longer these days, so why not put it off for a few more years? Think again. Improved longevity shouldn't have much of a bearing on when you prepare a will. Experts say almost everyone should have an estate plan, and it all starts with a will.
A will is arguably the most basic part of an estate plan, which also includes a financial power of attorney, a healthcare directive (also known as a medical power of attorney), and potentially a trust. As part of writing a will, the will's creator identifies an executor or personal representative of the estate who will be charged with managing the estate and wrapping up the decedent's affairs, which includes identifying and resolving all debts and filing his or her tax returns.
However, many people fail to create a will, often because they're afraid to face their own mortality. A number of people say they're too busy to sit down and draft a will, according to estate planning attorneys. "People spend their time and effort worrying about the now and not necessarily the what-ifs," says Karin Prangley, an estate planning lawyer with Krasnow Saunders in Chicago.
Dying without a will triggers intestacy laws, which means the state determines how a person's estate is distributed and how their assets are allocated. In other words, if you don't make a will, the state's law effectively does it for you. In most states, the estate is divided between the decedent's spouse and children, but not all states. There's a common misconception that people don't need a will if they just want their assets given to their spouse, says Elizabeth High, an estate planning lawyer with LeBlanc & Young in Portland, Maine.
For many families, a relative dying without a will causes significant strife, since a will names the legal guardians of the person's children. "The last thing you want to have if you die is a fight over who's going to raise your children," High says. She adds that family members are also likely to have clashing views about how the decedent wanted their money distributed.
Yet the majority of Americans do, in fact, die without a will, according to estate planners. And an alarming 50 percent of Americans with children don't have a will, according to a recent survey by RocketLawyer.com. "If you have children, it's absolutely time to put together an estate plan," says Brian Donnelly, an estate planning lawyer with Donnelly Ritigstein in Moorestown, N.J.
With so many intricacies to the law, U.S. News has identified five important things to keep in mind when preparing your will:
1. Don't make it yourself. Loads of websites offer programmed tools for do-it-yourself wills, but few people have a financial situation that's so simple they don't need a lawyer. A common issue with such websites is that they aren't state-specific. "The laws of particular states have nuances, and those often aren't picked up by an online program," says High. Also, a layperson probably isn't attuned to how elements like estate tax work.
Often, self-prepared wills aren't signed and finalized correctly. With these wills, Prangley frequently sees the executor or family members who are included as beneficiaries signed on as witnesses. "That does one of two things, depending your state: It either invalidates that witness and the entire will, or it may prevent that witness from receiving any benefit under the will," she says.
To avoid mistakes, reduce taxes, and potentially save your family money down the road, consult with an estate lawyer when preparing your will. "This is your whole life's worth, so why are you taking care of it entirely online or on your own?" says Donnelly.
2. Identify your assets. Before meeting with a lawyer, take a comprehensive inventory of your financial assets: bank accounts, credit cards, investments, retirement funds—the works. "If you don't know what your assets are, who gets them is irrelevant," Prangley says.
In today's world, it's also essential to consider things that aren't traditional properties, such as digital and biological assets. Digital assets don't just include online bank accounts but possibly domain names or social media accounts that generate money. For parents who conceived children through fertility treatment, leftover frozen embryos may come into play. "You might not think [a frozen embryo] is property, but it actually is and that comes as a big surprise to people," Prangley says.
Once you've compiled the asset information, don't put everything in a safe deposit box that no one else has access to. "It's a real pain for your family to go to the court and have the box legally drilled open, and it's also a huge time delay," says Donnelly.
3. Joint property with a spouse falls outside the will. One type of ownership is joint property, often real estate and bank accounts shared by spouses. These wouldn't be distributed by the terms of one person's will; rather, they are passed to the surviving owner by operation of the law, High says. However, if an account is just under one person's name, it's passed through a will.
Property is also distributed by a will if it falls under what's known as tenancy in common, which takes place when owners own a percentage of an asset, says High. For example, if someone owned a property with their siblings by tenancy in common, that person's percentage of the property wouldn't automatically go to their surviving siblings but would rather be passed on according to their will.
4. Be careful in selecting guardians and trustees. If you have children, naming their legal guardians in the event of your death is a crucial part of the will process.
High advises clients not to select the same person to be both the legal guardian and the trustee—the person in charge of the child's assets. "You don't want to have one person in charge of everything," High says.
If your children are older and don't require a trustee, it may be wise to suggest they seek out a financial planner. "People need to be aware of who they're willing assets to," says Rodd Miller, a certified financial planner and president of Miller Wealth Management in Carlsbad, Calif. "People who aren't used to having money that now have a couple extra zeroes added to their bank account may not know how to handle it. If you're not accustomed to dealing with investments and a large amount of money, you don't want to make a swift [investment] without looking at all of your options."
5. Beneficiary designations override wills. A number of accounts, such as IRAs, life insurance, and annuities, don't pass through probate. Instead, the owners name beneficiaries who will receive the funds through a separate document called a beneficiary designation. These beneficiary designations supersede anything specified in the will. Therefore, you should review your beneficiary designations with the estate lawyer when planning the will.
The final step: After the will is created, High suggests meeting with your estate lawyer every five years, as tax laws change frequently. Any time you encounter a significant life change—the birth of a child, a death in the family that impacts you financially, a milestone (such as retirement)—is also a good time to review your will.