The Top 4 Things You Should Include In Your Will
When it comes to estate planning, having a comprehensive and well-planned will is essential. Without this crucial document, your loved ones could face various legal and financial challenges once you’re gone.
However, while a will is vital, not everyone knows what to include. Fortunately, we’re here to help. Here are the top four things you should have in your will.
First and foremost, you need to make sure that your last wishes are followed correctly. An executor is in charge of your estate and can make legal decisions on your behalf. So, choosing the right person can make a substantial difference.
While it might be tempting to pick a family member, you may want to avoid any potential conflict of interest. As a rule, an executor is in charge of the following tasks:
- Filing the will with the local probate court.
- Notifying all relevant parties of your death, including family members, banks, credit cards, etc.
- Closing bank accounts in your name or transferring ownership to co-owners.
- Paying off any outstanding debts with estate assets. Doing this requires opening an estate account to manage all funds. The executor also pays income taxes with this account.
- Taking inventory and manage all assets, both financial and real (more on the difference later).
- Distributing all assets according to the will.
Depending on the size of your estate, the executor’s job can be lengthy and complicated. Probate can also extend this timeline, meaning that your executor can potentially spend weeks or months on these various tasks.
How to Choose an Executor
Becuse this position is so crucial, you want to be careful about who you name. You can also designate multiple executors to reduce the burden. If you have a large estate, having multiple executors can be a good idea.
Here are some steps to ensure that you pick the right person or persons.
Discuss Your Estate Planning
One way to cut down on the time needed to manage your assets is to discuss your will and estate with the executor. Go over the various duties required and make sure that the person can handle them swiftly and efficiently.
Whether you choose a family member or a third-party, executors are paid for their time and effort. Ideally, you can discuss payment ahead of time and leave it in the will. If you forget to include an executor’s fee, the state will usually determine the amount.
If your executor can’t perform the duties or doesn’t want to, it helps to have a second (sometimes a third) option. This way, you don’t have to rely on the state choosing an executor for you, which can delay asset distribution even further.
Overall, you want someone honest and reliable. That said, you don’t have to worry about an unscrupulous executor taking your assets and running off - that’s illegal. By law, executors have to follow your will precisely. They don’t get a say in how assets are distributed, no matter how they feel about the situation.
It’s usually best to name a third-party executor, such as a family lawyer. Not only will they be better equipped to handle the various legal and financial processes, but they are more likely to be objective.
If you have any minor children, you will need to name guardians for when you’re gone. Typically, the other parent will gain custody unless you specify a different person in your will. For example, if you’re divorced or don’t think the other parent is responsible enough to care for the kids.
As with an executor, you want to be careful about who you choose to be a legal guardian. You also want to discuss the responsibility with the person beforehand so that they know what to expect if you die.
Once your children become legal adults, you can remove this section from your will.
The primary function of a will is to distribute your money and assets to your beneficiaries. However, several methods are available, and not all of your belongings should go through a will.
There is also a difference between financial assets and “real” assets. Financial assets are contracts, while real assets have tangible inherent value (i.e., your home). Here are some factors to consider when determining what to include in your will and how everything will be distributed.
Regardless of where you live or your estate's size, all wills have to go through probate. The purpose of this process is to prove that the will is legal and that there is an executor to handle the various tasks related to it. If you don’t name an executor in the will, the court will appoint one, known as an administrator.
Another part of probate is ensuring that all taxes and debts are paid before assets are distributed to beneficiaries. These details can be why probate takes so long, particularly for larger estates. Some states have streamlined the probate process, and if your executor knows what’s in your will, they can expedite most of these tasks.
Be sure to talk with an estate planner to understand your state’s laws. For example, in some cases, the executor has to be a resident. So, if you name someone out of state, they could be invalid.
Another point to consider with probate is that your will becomes public. This also means that your will's contents can be contested, which will make probate last longer.
While you can put all of your assets in a will, sometimes it’s better to use a trust instead. A trust is a separate entity in which you can include various items, including property. Here is a quick overview of the elements of a trust:
- Trustor - The person putting assets into the trust.
- Trustee - The person managing the trust and its assets.
- Beneficiary - The person receiving the assets from the trust.
Overall, a trust gives you more control over your assets and allows you to expedite the inheritance process. Trusts are not subject to probate because they are legally binding as soon as they’re created.
That said, trusts do cost money to create and manage, so they may not be feasible for those with smaller estates or limited funds.
Will vs. Trust: Which is Better?
Realistically, you will want both when planning your estate. Trusts are ideal for passing property and other high-value assets to your beneficiaries, particularly because they don’t have the same tax laws as a will. Also, you can give assets immediately without having to go through probate.
Wills are necessary for guardianships, as you cannot name a guardian in a trust. Also, if you have assets that don’t have a high dollar value (i.e., family heirlooms), it’s usually better to disperse them in a will.
In both cases, you can stipulate any requirements for beneficiaries, such as age limits or other qualifications. For example, you can state that your child has to graduate college to receive their assets.
Which Assets Cannot Be Put in a Will?
While you can include virtually any of your assets in your will, there are some limitations. Basically, any asset with a named beneficiary cannot be included, such as:
Since these assets pass to the beneficiary upon your death, a will cannot override that. You also cannot include any co-signed property. For example, if you purchased a home with your spouse and their name is on the mortgage, you can’t pass the house to someone else since your spouse will become the sole signatory.
Finally, you have to name beneficiaries in your will. You can include as many individuals as you like, and you can exclude specific people as well. For example, if you don’t want a family member to receive any of your belongings, you can exclude them. Doing this ensures that they don’t have a legal right to contest your will, making it harder for other beneficiaries to receive their claims.
Keep in mind that minors cannot receive inheritance directly. Instead, their legal guardian will often be given custody of the assets until the child reaches 18 (or 21, depending on the state). If you use a trust, the trustee is in charge.
Tips for Preparing Your Will
No matter what, you should consult a legal professional when creating your will. Here are some other tips to make this process easier.
- Discuss Your Will With Your Beneficiaries - Fights and disagreements can happen when family members are left in the dark. Discuss your plans with all of your beneficiaries before you die so that there is no confusion.
- Update Your Will Regularly - As you experience significant life changes (marriage, new kids, new job), you’ll have to update your will. Forgetting to do this could cause complications later on.
- Start Earlier Than You Think - While we all want to grow to a ripe old age, the future is always uncertain. If you have any substantial assets, now is the time to develop a will.
Learn how your spouse and heirs could have been negatively impacted if your estate plan hasn't been updated to reflect the new laws. Find out what the new regulations did to open 6 estate planning "wormholes" in our downloadable PDF.
Contact NextGen Wealth Today
Estate planning can be daunting if you don’t know what you’re doing. We can help you figure out the best options for you and your family. Call us today to find out more.