The simplest way to ensure that your funds, property and personal effects will be distributed after your death according to your wishes is to prepare a will. A will is a legal document designating the transfer of your property and assets after you die. Usually, wills can be written by any person over the age of 18 who is mentally capable, commonly stated as "being of sound mind and memory." Your state may impose additional requirements.
Although wills can be simple to create, about half of all Americans die without one (or intestate) * Without a will to indicate your wishes, the court steps in and distributes your property according to the laws of your state. Wills are not just for the rich; the amount of property you have is irrelevant. A will ensures that what assets you do have will be given to family members or other beneficiaries you designate. If you have no apparent heirs and die without a will, it's even possible the state may claim your estate.
Having a will is especially important if you have young children because it gives you the opportunity to designate a guardian for them in the event of your death. Without a will, the court will appoint a guardian for your children.
Speak to your estate planning attorney for more information.
*American Bar Association Division for Public Education http://www.abanet.org/publiced/practical/wills.html.
Here are the basic elements generally included in a will:
- Your name and place of residence
- A brief description of your assets
- Names of spouse, children and other beneficiaries, such as charities or friends
- Alternate beneficiaries, in the event a beneficiary dies before you do
- Specific gifts, such as an auto or residence
- Establishment of trusts, if desired
- Cancellation of debts owed to you, if desired
- Name of an executor to manage the estate
- Name of a guardian for minor children
- Name of an alternative guardian, in the event your first choice is unable or unwilling to act
- Your signature
- Witnesses' signatures
Two of the most 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's important to name a guardian for minor children in your will in case neither you nor your spouse is able and willing to act. The guardian you choose should be over 18 and willing to assume the responsibility. Talk to the person ahead of time about what you are asking. You can name a couple as co-guardians, but that may not be advisable. It's always possible the guardians may choose to go their separate ways at some later date, and, if so, a custody battle could ensue. 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 distribution of your assets in accordance with your will. Most people choose their spouse, an adult child, a relative, a friend, a trust company or an attorney to fulfill this duty. You should expect your estate to pay an independent executor for this service.
If no executor is named in a will, a probate judge will appoint one. Probate refers to the legal procedure for the orderly distribution of property in a person's estate. The executor files the will in probate court, where a judge decides if the will is valid. If it is found to be valid, assets are distributed according to the will. If the will is found to be invalid, assets are distributed in accordance with state laws.
Responsibilities usually undertaken by an executor include:
- Paying valid creditors
- Paying taxes
- Notifying Social Security and other agencies and companies of the death
- Canceling credit cards, magazine subscriptions, etc.
- Distributing assets according to the will
Working with your estate planning attorney, start by organizing what you need: outline your objectives, inventory your assets, estimate your outstanding debts and prepare a list of family members and other beneficiaries. Use this information to carefully consider how you want to distribute your assets.
Ask yourself lots of questions:
- Is it important to pass my property to my heirs in the most tax-efficient manner?
- Do I need to establish a trust to provide for my spouse or other beneficiaries?
- How much money will my grandchild need for college?
- Do I need to provide for a child who has a disability?
Prior to the preparation of your will, it is important to take inventory of your assets. Assets should be mentioned in your will. Any items not specifically mentioned may be addressed in a catchall clause of your will called a residuary clause, which generally states, "I give the remainder of my estate to ..." Without this clause, items not specifically mentioned will be distributed in accordance with state law.
Outstanding debts usually will be paid by your estate before your beneficiaries receive their shares. You may want to clear up debts that you know will be a problem, or make specific provisions for payment of those debts in your will.
Remember to be specific and clear when naming beneficiaries. For example, state the person's full name as well as his or her relationship to you (child, cousin, friend, etc.) so your executor will know exactly who you mean. Clarity will also help to prevent challenges to your will.
States require that you sign the will in front of witnesses-the number of witnesses varies by state. A witness should not be a beneficiary under the will. Only one copy should be signed.
It is important to note that a will governs only the transfer of probate property. The death proceeds of a life insurance policy and the balance of a retirement plan for which a beneficiary other than your estate has been designated will generally not be governed by your will. Assets owned jointly with rights of survivorship pass to the survivor by operation of law and therefore are also not governed by the terms of your will. Speak to your estate planning attorney for more information.
Updating a Will
You'll probably need to update your will several times during the course of your life. For example, a change in marital status, the birth of a child or a move to a new state should all prompt a review of your will. You can update your will by amending it by way of a codicil or by drawing up a new one. Generally, people choose to issue a new will that supersedes the old document. Be sure to sign the new will and have it witnessed, then destroy the old one.
The property included in your estate may be subject to taxation. When planning your estate, with the help of your attorney, take into account the following:
- State estate or inheritance taxes
- Federal income taxes
- State income taxes
In the event your estate is subject to estate tax, you may be able to reduce this liability by making gifts during your lifetime or through the use of trusts. Life insurance may also help provide liquidity with which to pay taxes and expenses due as a result of your death. Speak to your tax and legal advisors as well as your financial services professional for more information.
Once your will is written, store it in a safe place that is accessible to others after your death. If you name a trust company as executor, it will hold your will in safekeeping. You can keep it in your safe deposit box, but be aware that some states will seal your safe deposit box upon your death, so this may not always be the safest place to store your will. Make sure a close friend or relative knows where to find your will. If you had an attorney prepare your will, have him or her retain a copy with a note stating where the original can be found.
A living will is not a part of your will. It is a separate document that lets your family members know what type of care you do or don't want to receive should you become terminally ill or permanently unconscious. It becomes effective only when you cannot express your wishes yourself. If your state recognizes a power of attorney for health care, have one executed to authorize someone to act in accordance with your present intentions.
Discuss your wishes as reflected in your living will with family members, and be sure they have a signed copy.
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 and personal possessions is important. Making sure you've done all you can to make their lives easier will give you peace of mind. And once your will is drafted, you won't have to think about it again unless something significant in your life changes.
The American Bar Association Guide to Wills and Estates, Second Edition: Everything You Need to Know About Wills, Estates, Trusts, and Taxes
by American Bar Association
Publisher: Random House Reference; 3nd edition
The Everything Wills and Estate Planning Book: Professional Advice to Safeguard Your Assets and Provide Security for Your Family
by Kimberly A. Colgate
Publisher: Adams Media Corporation
Consumer Information from the Federal Government
The quarterly Consumer Information Center Catalog lists more than 200 helpful federal publications. For your free copy write Consumer Information Catalog, Pueblo, CO 81009, call 1-888/8-PUEBLO (1-888/878-3256) or visit www.pueblo.gsa.gov.
FindLaw is a great legal resource for anyone dealing with wills, trusts, and estates. If you want technical information, FindLaw offers a comprehensive compilation of legal information and sites on wills.
The American Bar Association website has an abundance of useful information on a variety of legal issues, like writing wills.
Believe it or not, the IRS folks have lots of helpful tax advice related to wills. Check out the site and get plenty of information from the people who should know a thing or two about taxes!
The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (“Act”) impacts the federal gift, estate and generation skipping transfer tax (together referred to as “transfer tax”) through 2012. Among other changes, the Act temporarily establishes maximum exemption amounts of $5,000,000 per person for transfer tax purposes, establishes a maximum transfer tax rate of 35% and provides for portability of the estate tax exemption between spouses. These changes, however, are only in effect through December 31, 2012. Unless Congress enacts new legislation, on January 1, 2013 the transfer tax laws will revert back to the laws (e.g. exemption amounts of $1,000,000 and generally 55% maximum tax rates) that were in effect in 2001. At this time, it is not clear what steps, if any, Congress will take to revise the transfer tax laws for years beyond 2012. Future changes in transfer tax exemption amounts and transfer tax rates may impact the appropriateness of any transfer tax planning strategy or product sale. Clients need to understand that tax law is always subject to interpretation and legislative change. MetLife and its affiliates do not provide tax advice and therefore clients must speak with their qualified legal and tax counsel regarding their current estate plan and what planning options are available and appropriate.
MetLife does not provide tax or legal advice. Please consult your tax advisor or attorney for such guidance.