Everyone knows the importance of preparing and maintaining a
will, yet many people have never written one. To those who haven't,
take note: If you die intestate (without a will), the probate court
intervenes and a judge (whom you probably have never met) decides
how your assets are to be distributed. And if you're a single
parent of minor children, the same judge will decide with whom they
will live.
On the other hand, if you take the time to prepare a will,
you'll be the one who determines how your property is distributed
and who will care for your minor children when you're gone. Simply
put, a will provides peace of mind and the immense satisfaction of
knowing that you have taken the necessary steps to pass on the
fruits of your life's labor to your loved ones.
What Is a Will?
A will is a legal declaration that enables you to direct the
disposition of your assets upon your death. You can divide your
assets any way you want, as long as guidelines are presented
clearly in writing. The portion of your estate covered by a will
includes both tangible assets, such as your home or your car, and
intangible assets, such as bank accounts and mutual fund shares
that are generally owned in your name. Other rights and benefits,
like pension rights and life insurance proceeds, are normally
handled outside of your will. In most cases, those benefits are
paid directly to your designated beneficiaries.
The cost of creating a will will vary depending on the
complexity of your estate. Online will services that allow you to
create a will yourself using a predefined template run under
$100, while most attorney-assisted wills range in price from $500
to $2,000. No matter what type of will you create, it should
include the following items: your full name; a statement that the
document is a will; the date; a statement revoking all previous
wills; a specific bequest, which is for the
transfer of a particular piece of property to a named beneficiary;
a general bequest, which does not specify from
which part of the estate the property is to be taken, including
provisions for the death of the named beneficiaries; the name of a
trust beneficiary, if applicable; names of guardians and alternates
for minor children, if necessary; the names of the executor and
substitute executor; and your signature. Your signature is usually
required to be certified by at least two witnesses, preferably by
individuals who have no connection to the will, such as employees
of the law firm you're using. Do not have someone who is a
potential beneficiary of the will act as a witness, as this could
raise doubts about the will's authenticity at a later date.
Types of Wills
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- A simple will provides for the outright
distribution of assets to beneficiaries.
- A will that establishes trusts to receive assets is a
testamentary trust will.
- A will that passes assets into existing trusts is a
pour-over will.
- A living will declares that you do not wish to
be kept alive by medical means if you become mentally or physically
incapacitated and have no realistic hope of recovering to lead a
normal life.
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Drafting a Will
Ideally your will should be drawn up by a lawyer, and you (and
your heirs, if possible) should be familiar with its general form
and contents. Although it's your legal right to do so, it's usually
not a good idea to draft your own will. You may not be aware of the
statutory requirements that exist in your particular state for
establishing a valid will. State requirements vary and some states
may have different standards for witnessing a will, or require
specific language that must be included for the will to be
considered valid. Having your will at least reviewed by a lawyer
can safeguard against these errors.
When meeting with a lawyer to draft your will, bring the proper
information. Such a list typically includes proof of your real
property, such as your home, along with documentation that shows
how much you paid for it. Bring deeds, bills of sale, and any other
documentation to prove your ownership. Also bring a list of
intangible property such as your bank account and investments; your
latest bank statements and brokerage or mutual fund statements; a
copy of any life insurance policies; and a list of your debts,
including those owed to banks, insurance companies, the Internal
Revenue Service, and individuals.
One item that individuals often overlook when drafting their
will is a list of names, addresses, and telephone numbers of any
professionals they want contacted, such as an insurance agent,
broker, banker, or lawyer. Also bring the names of any executor or
guardian named for your children.
Key Criteria
Husbands and wives can write their wills jointly or separately,
although most legal professionals recommend the latter, as it is
difficult to establish who owns which property in a joint will.
Questions also arise as to whether one spouse can change the terms
of the will without the consent of the other. Obviously, this can
be a particularly thorny issue in the event of a separation or a
divorce.
Also, if you have young children, an important provision is the
selection of a guardian who would raise your children in the event
of your death and the death of your spouse. If you die without a
will and have minor children, the probate court will appoint a
guardian for them, and there is no guarantee that the court's
appointment of a guardian will coincide with your own. Often the
courts take a "blood is thicker than water" approach to children,
although your first choice may have been a friend whose style of
child rearing is more in line with your own.
The Post-Will Process
Once your will is completed, keep an original copy on hand,
although it's perfectly fine to make photocopies for family members
and friends. Keep the original in a secure place, such as a home or
business fireproof safe or bank safe deposit box. If that can't be
arranged, keep it in your lawyer's office or with the clerk at your
local probate court, who will hold it for safekeeping in a sealed
envelope. Wherever you decide to keep your will, make sure that its
location is known by family members or close friends.
It's also a good idea to review your will every five years. Your
family circumstances or financial fortunes may change, as may
federal and state laws. When things do change, periodically review
your will with your lawyer (and revise if necessary) to ensure that
its contents conform to current laws and regulations and that it
reflects your current status and desires.
Choosing an Executor
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When you create a will, you must choose an executor of your
estate. Your executor will ensure that the settlement of your
estate is properly administered upon your death. This can either be
a longtime, trusted friend with a good grasp of conducting
financial affairs, or an institution, such as a bank or a law firm,
that has the necessary financial and legal expertise.
If you trust your executor completely, it may be a good idea to
give that person enough authority to take action on your estate
without having to buy a surety, or fidelity bond, that ensures your
estate against poor management by the executor. The cost of that
bond, which can be significant, is usually paid by your estate.
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Don't Leave Things to Chance
Much is made in life of the things we can't live without. Little
is made -- in your financial life, anyway -- of the things you
can't die without. A will is at the top of that list. While it's
unpleasant to contemplate the possibility of your own demise, it's
very satisfying to know that you've put your financial house in
order.