Making a will – 10 little-known facts you need to know
The pandemic has changed the way people think about many things, including estate planning and writing a will.
According to a study, more than 68% of Americans do not have a will. But that is about to change. In 2021, young adults are 63% more likely to have a will than they were before the pandemic.
Making a will is not the most exciting subject, and it forces you to deal with your mortality. But whether or not there is a pandemic, it is highly recommended that you have a plan in place for your home, bank accounts, and possessions should the worst happen.
Before you sit down to plan for your estate, here are ten things you need to know that you might not have thought of.
1. What happens if you die without a will?
If you die without a will, you and your loved ones will not be responsible for the distribution of your property. Death intestate (i.e. without a will) means that the state courts will decide who will get your property back and who will become the guardian of your children.
If you have a family member you help support or an unmarried partner, you may not be able to pass your property on to them. Each state’s laws are different, but for the most part, your assets will be passed on to your next of kin by blood, whoever you choose.
Having a will in place ensures that you are in control of your assets and can distribute them as you see fit. So if you want to donate to a school or charity, you can – without the state getting involved.
2. Some assets are distributed regardless of what your will says.
It’s not as scary as it sounds, but you should be aware that some assets are passed on outside of the will, regardless of what you put in writing.
Here are some examples :
- 401 (k) plans
- Individual retirement accounts (IRA)
- Life insurance policies
The person named as beneficiary on these types of accounts will usually receive the assets regardless of what your will says.
It’s a good idea to check the beneficiary on your accounts every few years, especially during major life changes like getting married or divorced, having children, or buying a house. If you keep them up to date, you can make sure your money is going to the right place.
Another area where this comes into play is defined benefit pensions. For example, one of my family members is a federal employee. As I helped her with her FERS retirement calculations, we also discussed the various annuity options for a surviving spouse and how this would affect their retirement plan. This pension represents a large part of his estate, but the manner in which it is transferred is totally beyond the scope of his written will.
3. You can make a will for free, but beware of the limitations.
If you search online, there are many free or inexpensive templates you can download for writing a will. But be aware that these forms will not necessarily comply with all the specifics of the laws in your state.
My wife and I went with a free option to make a will the first time we have traveled for a long time without our children. We wanted to make sure we had something in place just in case of an emergency.
However, if your life and assets are more complex, it may be a good idea to hire an estate planning lawyer in your area who is familiar with local laws. They can also help you solve various scenarios that you might not have thought of, such as how best to transfer title to a property or what to do if you are in business with a partner.
4. There are other documents you should consider besides a will to protect you and your family.
Making a will is only part of the estate planning process. There are often other legal documents that you will want to have on hand and helpful instructions for those close to you, especially if you are the one who takes care of the finances the most.
One document you may want to consider is a living will. This is an advance health care directive that describes your wishes if you cannot make these decisions. For example, if you are on life support, it would be written as a legal directive instead of forcing your spouse or loved one to make the difficult choice of ending life saving measures.
Another document to consider is the power of attorney. This gives one or more people the ability to make medical, financial, or other decisions for you if you are incapacitated.
Finally, although it is not a legal document, having a file with information on financial accounts, assets and other documents can be of great help to your loved ones if you die or become incapacitated.
For example, I keep all of our rental property accounting documents stored and organized so that my wife can access them in case of problems. The last thing I want is for her to worry about rent checks or maintenance calls if I’m gone.
Having easily accessible information can ease the burden of an already stressful time for your family if they know how to access bank accounts, insurance contacts, and other things that are normally taken for granted.
5. Appoint guardians for your children
If you’re a parent, you’ll want to make sure you use your will to name your children’s guardians.
This can be a difficult decision and probably requires a conversation with potential tutors. However, it is certainly in your best interest to have this put in writing and not leave it up to state courts to decide.
6. Consider setting up a trust
If you want to pass money on to your kids but don’t want them to receive a massive windfall early on, you can create a trust to hold one or more of your assets. You can then make your child the beneficiary of the trust.
This trust will hold the assets on behalf of its beneficiaries and is its own legal entity. When you set up the trust, you can plan how and when the assets are distributed. For example, the beneficiary could receive a certain percentage when they reach a certain age or a fixed amount each year.
7. If you own a business, be sure to include it in your estate plan.
If you’re a business owner, your business itself could be one of your most valuable assets (and one of the hardest to pass on).
For a small business owner, think about how much your business depends on you personally. If you were to die, how would the business continue to operate? Would you like to sell all of the company’s assets and go out of business? Or appoint a family member or colleague to take over? These are all questions you should consider.
Even if you have a lateral shaking making an extra $ 1000 per month, you should think about how or even if this income stream could continue after your death.
For example, I have some secondary issues. One of them is my personal finance blog, which depends almost entirely on me to keep running. As an income producing asset, it could be sold for a profit. To that end, I gave my wife some basic instructions on who to contact to help her maintain and sell the blog in the event of death or disability.
8. Name an executor
The executor is responsible for carrying out your last wishes as stated in the will. They will distribute your assets to your beneficiaries, pay off your debts, and generally settle your accounts after your death.
When drafting the will, be sure to name an executor and maybe even a backup. It should be someone organized, reliable and trustworthy, because the job comes with a lot of responsibilities. Often, the executor will be a spouse, adult child, or trusted friend. This is a big responsibility, so like appointing a tutor, be sure to have a conversation with them to make sure they are ready to take on the job.
If you don’t want this task to fall on a family member during bereavement, you can also choose an accountant or lawyer as the executor and have their fees come directly from your estate.
9. Make sure you follow the rules to make it legal
State rules vary, but most times there are a few key steps you need to take to make your will a legal document. It is often not enough to write it down on a piece of paper and sign your name.
After you’ve made your will, most states require that you sign it in your own handwriting in front of at least two witnesses, who will also need to sign your will. These witnesses cannot be your executor, guardians, or other beneficiary of the will. Some ideas for your witnesses could be friends, neighbors, or co-workers.
In addition, you may need to have your will notarized before it is legally valid. Be sure to check your state’s rules.
10. Remember to update your will periodically
Once you’ve finally made a will, you’ll probably want to put it in a drawer and forget about it forever, but don’t!
Life is going on and some big changes might mean you need to reassess your willpower. You should consider updating your will at least every five years, or if you have a big change in your life such as:
- have children / grandchildren
- marry or divorce
- States on the move (because laws surrounding wills vary from state to state)
- buy a house or other important asset
- if one of your beneficiaries, guardians or executors dies
Making a will is important
It can be easy to delay writing a will, thinking you’ll get there soon enough. But writing your will is essential because you never know what tomorrow will bring.
Having a will in place is one of the best things you can do for your loved ones after you leave. This gives them time to mourn your loss, knowing that they won’t have to deal with the stress of fighting in court over how your assets will be distributed.
If you keep the fundamentals outlined above in mind, you can have peace of mind knowing that you are taking care of your family when needed.