A will is a legal document that specifies who will inherit your bank accounts, real estate, jewelry, cars, and other property after you die. A will tells the world exactly where you want your assets distributed when you die. For parents, making a will is the single most important thing you can do to make sure your child is cared for by the people you would choose if anything should happen to you. In your will you can designate a person (guardian) to care for your children if you die before they become legal adults. And you can designate a property guardian or trustee to manage your money for your children until they reach adulthood. You can appoint one person to act as both personal and property guardian, or choose two people to carry out the separate roles.
A will also allows you to name your executor, the person who will be in charge of your estate. Before you select an executor, make sure you understand the tasks he or she will need to perform, which include distributing your property, filing tax returns and processing claims from creditors. Your executor should be someone you trust completely – and don’t forget to ask if he or she is willing to take on such a big responsibility.
To make a will you don’t necessarily need a lawyer, (although I recommend using one) but you’ll need to invest time, energy, and probably a little money to do it right yourself. Many families have written legally valid wills by using a self-help book or a will-writing software program, although mistakes are more likely with a do-it-yourself will. Reviews of will writing software programs – http://wills-software-review.toptenreviews.com/. If the cost of using a lawyer is holding you back from writing a will, you can use a service like http://legalzoom.com and do it yourself. On the other hand, if the thought of plowing through pages of legalese is too daunting, call a family lawyer. Ask for recommendations from family, friends, or trusted professionals you work with. A lawyer can cost you anywhere from a few hundred to a few thousand dollars, but the money buys you expertise and peace of mind.
To save money, think through what you want to include in your will first and then contact a lawyer to go over the finer details. Also, find out whether your employee benefits include free legal consultation. Such consultations may be limited to 30 minutes, but that could be a very helpful half hour.
Here are a few ideas to start you off:
• Make a list of all your assets, including bank accounts, investments, real estate, life insurance, and personal property.
• Decide exactly whom you want to inherit what, and when. For instance, you might want your daughter to inherit her grandmother’s gold bracelet when she turns 16.
• Choose a guardian for your children.
• Choose an alternate guardian in case your first choice is unwilling or unable to do the job.
• Decide whether you want someone else to handle the assets you leave your children. If so, choose that person.
• Choose an executor to carry out your wishes and handle the necessary paperwork after you die.
• Decide whether you want to include a letter stating how you’d like your children to be raised and educated, your funeral to be arranged, and so on.
After making your will, you’ll need to sign it in the presence of at least two witnesses. If you’re using a document called a “self-proving affidavit” with your will (to make things simpler when the will goes through probate court after your death), your signature must be notarized as well. Tell your executor where your will is and how to get access to it when the time comes.
A will is also useful if you have a trust. A trust is a legal mechanism that lets you put conditions on how your assets are distributed after you die and it often lets you minimize gift and estate taxes. But you still need a will since most trusts deal only with specific assets such as life insurance or a piece of property, but not the sum total of your holdings.
For 2014, the lifetime gift tax exemption increased to $5.34 million – the same as the federal estate tax exemption – meaning you can leave up to $5.34 million to your children without worrying about estate taxes. Couples can together leave over $10 million.
Keep in mind that life insurance policies, pension benefits, and real estate all count toward your total assets. (This is different+ from the annual gift tax exclusion, which is $14,000.)
If you know or suspect that your estate will be worth more than the exemption amount, talk to an estate planning professional about how to minimize the tax burden on your children.
You may amend your will at any time. In fact, it’s a good idea to review it periodically and especially when your marital status changes. At the same time, review your beneficiary designations for your 401(k), IRA, pension and life insurance policy since those accounts will be transferred automatically to your named beneficiaries when you die.
Dying without a will — also known as dying “intestate” — can be costly to your heirs and leaves you no say over who gets your assets. Even if you have a trust, you still need a will to take care of any holdings outside of that trust when you die.
Your assets go into “probate” – an expensive and drawn out legal process which determines who inherits your estate, and can take anywhere from a few months to a few years, depending on how complicated the estate is.
So-called intestacy laws vary considerably from state to state. In general, though, if you die and leave a spouse and kids, your assets will be split between your surviving mate and children. If you’re single with no children, then the state is likely to decide who among your blood relatives will inherit your estate.
Without a will, the courts decide what happens to your assets and who is responsible for your kids. Without a will, there’s no guarantee that when you die your money will go to the people you want or that your children will be cared for by the person you believe will do the best job. Moreover, if you and your partner both died without a will, the state courts and social services department would appoint someone to raise your children. And that person might have very different ideas about parenting than you do. Even if you think you have almost no property to leave your children, it’s worth making a will to make sure you get to choose their guardian.