Writing a will is the most basic step in estate planning, regardless of the size of your assets and the extent of your property.
Why have a will?
Legal protection. Do you want an officer of the court deciding who gets your money, jewelry, possessions, and real estate? Probably not. That’s what will happen without a will in a process called “probate,” which can be time consuming and may leave your heirs with higher court costs and legal fees than would be the case if you had a will.
Avoid probate. Even with a will, the probate process, which gives formal legal approval to the distribution of a decedent’s assets, can be time consuming and costly, especially if the will or its executor is challenged by creditors or heirs. But at least with a will in place, the probate process can usually move more quickly than with no will at all. (Learn more: Why people fear probate)
Assign guardianship. A will protects your choice of who takes care of your children and pets. This is such a personal decision, you’ll most certainly want to make it yourself and have it in writing.
Tax implications . You may have more assets than you think, and you’ll want to leave your heirs with as much as possible. There may be inheritance and estate taxes at both the federal and state levels. A will can possibly help your heirs avoid unnecessary taxation.
Peace of mind . If you think family situations can get complicated around the holidays or when it comes to sibling rivalries, just add money, valuable assets, and no estate plan in place to the mix. At least with a will in place, there’s the chance your estate can be divided with a minimum amount of family strife.
Who needs a will?
Everyone can benefit from a will, regardless of their assets. If you have fairly extensive assets or complex plans for distributing your property, you may want to seek out professional help to make a will. But not everyone needs a complex will or formal estate planning.
Anyone with a sound mind can create a legally recognized will in its most basic form. In fact, in 26 states, you’re able to create a handwritten holographic will — that’s a will with only your signature. In the rest of the country, state laws require that you and two witnesses sign and date the document. Notarization may be required as well, so if you go the DIY route, check your local requirements.1 Once you have a good grasp of the basics, there are a variety of websites and software services that can guide you through the process with a template document.
However, individual financial circumstances and preferences vary widely and often don’t match up exactly to pre-determined templates or forms. And laws and requirements for wills vary from state to state as well. For those reasons experts suggest it is more often preferable to work with an attorney licensed in your state of residence.
Once you’ve completed your will, put it someplace secure — but not in a safe-deposit box. “If it’s in a safe deposit box, it may be difficult for someone other than the box’s renter to gain access,” said Charles Nanavaty, a certified public accountant in Connecticut, in an interview. While his firm Nanavaty, Nanavaty & Davenport, LLP, deals in the tax implications of estate planning, he stresses that there are many basic logistical issues to consider in addition to the law and taxation. He suggests storing the original copy in a fireproof box at your home. Just be sure to tell your family where your will is kept.
If you want a professional’s help in creating your will, look for a lawyer in your area that specializes in estate planning. Here are some issues you might consider when hiring someone with in-depth estate planning knowledge:
Establishing a trust. A trust is an entity with legal authority to manage your assets, and distribute them according to your wishes. A trustee you appoint oversees the trust. With a trust, you could begin to distribute your assets while you can still see your beneficiaries enjoy them. A trust can possibly also reduce the size of your estate for federal tax purposes. (Related: Is a trust right for you?)
A living will. End-of-life decisions are best made before you need them. A living will — a type of healthcare directive — created now will instruct your doctors and loved ones on how to handle medical decisions, should you ever become incapacitated.
Power of Attorney. A power of attorney is a document that provides another person with authorization to act on your behalf in a legal or business manner. The document is written to provide that if you are unavailable or unable to make decisions to take action, there is someone who is legally able to act on your behalf. A ‘durable’ power of attorney means it survives your incapacity.
Health Care Proxy. Also knows as a health care power of attorney, this is a document that allows you (as a patient) to appoint an agent to make health care decisions in the event that you are incapable of executing such decisions. The laws surrounding these document are state specific so it is important you work with an attorney licensed within your state of residence.
Taxes. Under federal law, you can leave an unlimited amount to a spouse tax-free, but there are limits for other beneficiaries. For 2020, the limit is $11.58 million per individual before triggering a federal estate tax. In addition to federal law, a number of states have decoupled from the federal law and have their own limit. A tax or legal professional can guide you through your state’s requirements to help minimize tax burdens.
Distribution goals. If you’re giving all your worldly possessions to your spouse, that’s a fairly straightforward will. But what if you wish to give some money to your alma mater, some property to create open space in your hometown, and then have the balance of your assets divided among 15 relatives and friends? A lawyer can make certain your wishes are carried out as you intended without ambiguity. (Related: Life insurance for charity)
Domicile designation. If you spend part of the year in one state and the remainder in another, or if you move frequently, those states may try to tax your assets. A lawyer can help you establish legal domicile, simplifying your distribution and reducing tax liability.
Once you’ve created your will and stored it someplace safe, you may have to revisit it from time to time. Nanavaty suggests that you “review your will every two or three years or whenever circumstances change.” These events include:
- Having a child
- Children leaving home
- Acquiring a large asset (a vacation home, valuable artwork, the vintage roadster you’ve had your eye on, etc.)
- Selling a large asset
- A change in tax laws
Another estate consideration
Life insurance is generally thought of as way to provide for survivors. But it can go further than the obvious beneficiary needs, and can help pay future estate taxes and settle the policyowner’s debt. Learn how the role of life insurance can change to meet the different stages of your life. (Related: Life insurance overview)
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This article was originally published March, 2016. It has been updated.
1 Additionally, number of states are allowing temporary virtual notarization as a result of the COVID-19 crisis.