The simplest way to ensure that your funds, property and personal effects will be distributed as you desire after your death is to prepare a Will. A Will is a legal document setting forth the manner of transfer of your property and assets after you die. Usually, a Will can be written by any person over the age of 18 who is mentally capable. The following is a very cursory and non-specific overview of this important planning process.
Everyone Needs One
Although a Will is easy to create, over half of all Americans die without one. Without a Will to set forth your desires, your property is to be distributed according to the laws of your state. The amount of property you have is irrelevant to whether or not you need a Will (or a Revocable Living Trust). For example, having a Will is especially important if you have young children because it gives you the opportunity to appoint Guardians for them in the event of death of both parents.
Elements of a Will
Here are some basic elements generally included in a Will:
- Your name and place of residence
- Names of spouse, children and other beneficiaries, such as charities or friends
- Alternate beneficiaries, in the event a beneficiary dies before you do
- Any specific gifts
- Manner of distribution of your assets
- Establishment of trusts, if desired (for example, for young children)
- Name of an Executor to manage the estate, as well as a successor
- Name of a Guardian(s) for minor children, as well as successors
- Name of a Trustee for any trusts under the Will, as well as a successor
- Your signature
- Witnesses' signatures (notarized)
Two of the more important items included in your Will are naming a Guardian for minor children and naming an Executor.
Naming a Guardian
In most cases, a surviving parent assumes the role of sole guardian. However, it is important to name a Guardian or Guardians for minor children in your Will in case of the death of both parents. The Guardian(s) you choose should be over 18 and willing to assume the responsibility. Talk to the person being named ahead of time about what you are asking them to do, should the need arise. Many people name a couple as Co-Guardians. If you do not name a Guardian to care for your children, a Judge will appoint one, and it may not be someone you would have chosen.
Naming an Executor
An Executor is the person who oversees the handling and distribution of your assets and affairs immediately after your death and in accordance with your Will. Most people choose their spouse, an adult child, a relative, a trusted friend or a corporate fiduciary (e.g., a bank or brokerage Trust Department). You should expect your estate to pay a non-relative Executor for this service.
If no Executor is named in a Will, a Judge will appoint an Administrator to serve in this role. Probate refers to the legal (court supervised) procedure for handling the affairs of a decedent’s estate and carrying out the terms of the Will. The Executor or a close relative files the Will in Probate Court.
Responsibilities usually undertaken by an Executor include:
- Paying valid creditors
- Filing tax returns and paying taxes
- Notifying Social Security and others of the death
- Canceling credit cards, subscriptions, etc.
- Distributing assets according to the provisions of the Will
Preparing a Will
The process of making a Will begins with your organizing your desires and your information. Outline your objectives, inventory your assets, estimate your outstanding indebtedness and determine who is to receive what assets and how (e.g., outright, in trust). Then, consult an attorney who specializes in estate planning to go over your information. The attorney should also discuss ways to transfer your assets in the most tax-efficient manner, if applicable.
Taking inventory of your assets and indebtedness is key to making a Will. Outstanding debts and taxes usually will be paid by your estate before your beneficiaries receive their shares of your remaining assets. You should be specific and clear when naming beneficiaries. For example, state the person's full name as well as his or her relationship to you so your Executor (and the Court) will know exactly who you mean. Clarity will also help to prevent challenges to your will.
Updating a Will
You will need to update your Will several times during your lifetime. With the passage of time comes change -- for example, a change in marital status, the birth of a child or grandchild, a move to a new state or increases in the value of your assets. You can update your Will by amending it by way of a Codicil or by drafting a completely new Will.
Estate Taxes
All of the property you own and have a right to (including assets such as the face value of life insurance and your vested retirement accounts) will be counted for determining whether your estate is taxable for estate (and any inheritance) tax purposes. In planning your Will, you and an estate planning lawyer should take into account the following:
- Federal estate taxes will generally be due if your (and your spouse’s combined) net taxable estate is worth more than $1,500,000 in 2004. Estates in excess of this exempt amount are taxed at rates from 37% to as high as 50% in some years. Estate tax laws, requirements and planning are complex, so consult an attorney specializing in estate planning to determine a plan that is right for you and your family.
- State death or inheritance taxes
- Federal income taxes
- State income taxes
You may be able to minimize your estate and inheritance tax exposure by establishing a specialized trust or by giving gifts during your lifetime. Talk to your estate planning lawyer to find out more about how these planning options work.
Where to Keep Your Will
Once your Will is written, store it in a safe but accessible place. Your lawyer, Executor or any corporate fiduciary may hold your Will in safekeeping. Make certain that your Executor, family members and a close friend knows where to find your Will.
Plan Ahead
The end of your life is something you probably don't want to dwell on, but thinking about what will happen to your loved ones and your assets is important. Making sure you have done all you can to make your family’s lives easier at that time will give you and them peace of mind.