Due to the current global pandemic, your health and well-being might be top of mind. If you’re concerned about what happens to your money, home, and other property after you die, you need to do some estate planning, if you haven’t already.
There are many tools you can use to achieve your estate planning goals, but a will is probably the most vital. Even if you’re young or your estate is modest, you should always have a legally valid and up-to-date will. This is especially important if you have minor children because, in many states, your will is the only legal way you can name a guardian for them.
Although a will doesn’t have to be drafted by an attorney to be valid, seeking an attorney’s help can ensure your will accomplishes what you intend.
Wills avoid intestacy
The greatest advantage of a will is that it allows you to avoid intestacy. That is, with a will, you get to choose who will get your property, rather than leave it up to state law. State intestate succession laws, in effect, provide a will for you if you die without one. An “intestate’s will” distributes your property, in general terms, to your closest blood relatives in proportions dictated by law.
However, the state’s distribution may not be what you would have wanted. Intestacy also has other disadvantages, which include the possibility that your estate will owe more taxes than it would if you had created a valid will.
Wills distribute property according to your wishes
Wills allow you to leave bequests (gifts) to anyone you want. You can leave your property to a surviving spouse, a child, other relatives, friends, a trust, a charity, or anyone you choose. There are some limits, however, on how you can distribute property and wealth using a will. For instance, your spouse may have certain rights concerning your property, regardless of the provisions of your will.
Gifts through your will take the form of specific bequests (e.g., an heirloom, jewelry, furniture, or cash), general bequests (e.g., a percentage of your property), or a residuary bequest of what’s left after your other gifts.
Wills allow you to nominate a guardian for your minor children
In many states, a will is your only means of stating who you want to act as legal guardian for your minor children if you die. You can name a personal guardian, who takes personal custody of the children, and a property guardian, who manages the children’s assets, and these can be the same person or different people. The probate court has final approval, but courts will usually approve your choice of guardian unless there are compelling reasons not to.
Wills allow you to nominate an executor
A will allows you to designate a person as your executor to act as your legal representative after your death. An executor carries out many estate settlement tasks, including locating your will, collecting your assets, paying legitimate creditor claims, paying any taxes owed by your estate, and distributing any remaining assets to your beneficiaries. Like naming a guardian, the probate court has final approval but will usually approve whomever you nominate.
Wills specify how to pay estate taxes and other expenses
State law generally determines how estate taxes and other expenses are divided among your heirs unless you direct otherwise in your will. To ensure your beneficiaries receive the specific bequests you make in your will, and that taxes and other expenses don’t reduce this, you should specify that your residuary estate should cover these costs. Or, you can specify which assets should be used or sold to pay these costs.
Wills can create a testamentary trust
You can create a trust in your will, known as a testamentary trust, that activates during the probate process. Your will establishes the terms of the trust, such as who the trustee is, who the beneficiaries are, how to fund the trust, how to make distributions, and when the trust terminates. This can be especially important if you have a spouse or minor children who are unable to manage assets or property themselves.
Wills can fund a living trust
A living trust is a trust that you create during your lifetime. If you have a living trust, your will can transfer any assets that were not transferred to the trust while you were alive. This is known as a pour over will because the will “pours over” your estate to your living trust.
Wills can help minimize taxes
Your will gives you the chance to minimize taxes and other costs. For instance, if you draft a will that leaves your entire estate to your U.S. citizen spouse, none of your property will be taxable when you die (if your spouse survives you) because it is fully deductible under the unlimited marital deduction. However, if intestacy rules determine distribution, a portion of the property may be subject to estate taxes if your will distributes it to heirs other than your U.S. citizen spouse.
Assets disposed of through a will are subject to probate
Probate is the court-supervised process of administering and proving a will. Probate can be expensive and time-consuming, and probate records are available to the public. Several factors can affect the length of probate, including the size and complexity of the estate, challenges to the will or its provisions, creditor claims against the estate, state probate laws, the state court system, and tax issues. Owning property in more than one state can result in multiple probate proceedings. This is known as ancillary probate. Generally, real estate is probate takes place in the state of origin, and personal property takes place in your domicile state (i.e., reside) at the time of your death.
Will provisions can be challenged in court
Although it doesn’t happen often, the validity of your will can be challenged, usually by an unhappy beneficiary or a disinherited heir. Some common claims include:
• You lacked testamentary capacity when you signed the will
• You were unduly influenced by another individual when you drew up the will
• The will was forged or was otherwise improperly executed
• The will was revoked
The best way to avoid challenged provisions is to make sure you properly execute your will. To do this, you may want to hire an estate attorney who can assist you in drafting your will. You will also want to explain your decision to your family. Explaining your reasons for including or excluding someone in your will can eliminate the surprise. Also, include a letter that explains your decisions.
The bottom line
Creating a will should be a top priority. Once you create one, it’s important to revisit it regularly to ensure your wishes remain the same. You will also want to ensure your family knows where to find it upon your passing. A will do no good if no one knows where it is.
If you feel overwhelmed by these necessary steps, contact a financial planner. They will help you tackle the process of determining the best way forward for you and your family. Asking for help is the first step toward preparing for your future, and the best way to assure you’re protecting your most prized possessions – your loved ones.