The pandemic has changed the mindset of people on many issues, including estate planning and wills.
More than 68% of Americans have no willpower, according to one study. But that is changing. In 2021, young people are 63% more likely to have will than they were before the pandemic.
Making a will is not the most exciting topic, and it forces you to admit your mortality. But whether a pandemic or not, it is highly recommended that you develop a plan for your home, bank accounts, and property in case the worst happens.
Before you start planning your estate, there are ten things you need to know that you may not have thought about.
1. What happens if you die without a will?
If you pass away without a will, you and your loved ones will not be responsible for the distribution of your assets. A death without a will (i.e. without a will) means that state courts will decide who gets your property and who becomes the guardian of your children.
If you have a family member you help support or an unmarried partner, you may not be able to transfer your assets to them. The laws are different in each state, but for the most part, your assets will be transferred to your next blood relative, no matter who you choose.
Having a will ensures that you have control over your assets and can distribute them as you see fit. So if you want to donate to a school or charity, you can do so without government intervention.
2. Some assets are distributed regardless of what is said in your will.
It’s not as scary as it sounds, but you should be aware that some assets are transferred outside a will, no matter what you write.
Here are some examples:
- 401 (k) plans
- Individual retirement accounts (IRA)
- Life insurance policies
The person listed as the beneficiary on these types of accounts will usually receive the asset regardless of what is stated in your will.
It is recommended that you check the beneficiary on your accounts every few years, especially during significant life changes such as getting married or divorced, having children or buying a house. By keeping them up to date, you can ensure that your money goes to the right place.
Another area where this plays an important role is in defined benefit pensions. For example, one of my family members is a federal employee. As I helped her calculate her FERS retirement, we also discussed the various rent choices for the surviving spouse and how that would affect her retirement plan. This pension makes up a significant part of her fortune, but the procedure for its transfer is completely outside the scope of her written will.
3. You can create a will for free, but beware of restrictions.
If you search on the Internet, there are many free or inexpensive templates available to download for your will. Keep in mind, however, that these forms may not necessarily conform to all the specifics of your state’s laws.
My wife and I took the free option to make a will the first time we traveled for a long period of time without our children. We wanted to make sure we had something in place just in case.
However, if your life and assets are more complex, it may be wise to seek the help of a property planning attorney in your area who is familiar with local laws. They can also help you work through various scenarios that you may not have thought about, such as how best to transfer ownership of real estate or what to do if you are doing business with a partner.
4. There are other documents you should consider besides the will to protect you and your family.
Drafting a will is only part of the estate planning process. There are often other legal documents you will want to have on hand and helpful instructions for your loved ones, especially if you are primarily concerned with finances.
One document you might want to consider is a will. This is an Advance Medical Directive that tells you what you want to do if you cannot make these decisions. For example, if you are on a life support device, it will be recorded as a legal directive instead of forcing your spouse or loved one to make difficult choices and abandon life-saving measures.
Another document that should be considered is the power of attorney. This gives the person or persons the ability to make medical, financial, or other decisions for you if you are incapacitated.
Finally, while not a legal document, having a folder with information about financial accounts, assets, and other records can be of great help to your loved ones should you suddenly die or become incapacitated.
For example, I keep and organize all of our bookkeeping documents for renting property so that my wife can access them in case of need. The last thing I want her to worry about is rent checks or phone calls if I’m not here anymore.
Having information readily available can ease the burden of an already stressful time on your family if they know how to access bank accounts, insurance contacts, and other things that are usually taken for granted.
5. Name guardians for your children.
If you are a parent, you should make sure that you use your desire to appoint guardians for your children.
This can be a difficult decision and will likely require talking to potential caregivers. However, it is in your best interest that this is recorded and not left to the discretion of the state courts.
6. Consider creating a trust.
If you want to give money to your kids but don’t want them to make huge profits early on, you can create a trust to hold one or more of your assets. You can then make your child a beneficiary of the trust.
This trust will hold assets on behalf of its beneficiaries and is its own legal entity. By creating a trust, you can plan how and when assets will be allocated. For example, the recipient may receive a certain percentage upon reaching a certain age or a set amount each year.
7. If you have a business, make sure you include it in your real estate plan.
If you’re a business owner, your business can be one of your most valuable assets (and one of the hardest to transfer).
If you are a small business owner, consider how much your business depends on you personally. If you passed away, how would the company continue to operate? Would you sell all your business assets and close the store? Or assign a family member or colleague to take over? These are all questions you should consider.
Even if you have a side job earning an extra $ 1,000 a month, you should consider how, or even if, that stream of income might continue after you leave.
For example, I have several side issues. One of them is my personal finance blog, which is almost completely dependent on me to work. As an income-generating asset, it could be sold at a profit. To that end, I gave my wife basic instructions on who to turn to to help her maintain and sell the blog if I die or become incapacitated.
8. Name the executor of your will.
The executor of your will is responsible for fulfilling your last wishes as stated in the will. They will distribute your assets to the recipients, pay off your debts, and usually pay your bills upon your death.
When drafting your will, be sure to name the executor and perhaps even a backup copy. This person should be organized, reliable and trustworthy, as there are many responsibilities at work. Often the performer is a spouse, adult child, or trusted friend. This is a big responsibility, so as with appointing a guardian, be sure to talk to him to make sure they are ready to take on the job.
If you don’t want this task left to a family member in time of grief, you can also choose an accountant or lawyer as your performer, and their fee will come directly from your estate.
9. Be sure to follow the rules to make it legal.
Government regulations vary, but for the most part, there are a few key things you must do for your will to become a legal document. It is often not enough just to write it down on a piece of paper and sign your name.
After you write your will, most states require you to 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 any beneficiaries of the will. Some ideas for your witnesses might be friends, neighbors, or coworkers.
In addition, you may need to notarize the will before it becomes legally valid. Be sure to check the regulations in your state.
10. Remember to update your will periodically.
When you finally make your will, you probably want to put it in a drawer and forget about it forever, but don’t!
Life happens, and major changes can mean you need to reevaluate your will. You should consider renewing your will at least every five years, or if big changes are taking place in your life, such as:
- have children / grandchildren
- get married or divorce
- movable states (because the laws surrounding the will vary from state to state)
- buying a house or other large asset
- if one of your beneficiaries, guardians or executors has passed away
Making a will is important
It is easy to postpone making a will, thinking that you will soon achieve it. But writing your will is necessary, because you never know what awaits you tomorrow.
Having a will is one of the best things you can do for your loved ones after you leave. This gives them time to grieve your loss, knowing that they won’t have to deal with the stress of a legal battle over how your assets will be distributed.
By keeping the basic principles outlined above in mind, you can rest easy knowing that you are caring for your family in times of need.
This post was originally published on Your Money Geek.