Wills and Estate Planning: 6 Reasons Why your Will is Critical to Your Estate Plan
One of the most important tasks you undertake is to create an estate plan to ensure you’re taken care of for the rest of your life and then distribute your assets and provide for your loved ones after you die.
A primary component of an estate plan is a will. It is crucial to outline the reasons why to include a will in an estate plan because, according to surveys, only 42% of American adults have a will. Many people procrastinate about their estate plans, while others believe a living trust, jointly owned property and other actions eliminate the need to have a will.
Wills can vary in complexity and can be used to achieve a wide range of family and financial objectives. You can do a number of things in a will. Most people know it lets you distribute property you own, Without the will, your property will be distributed according to the state’s default plan. But a will also enables you to make other decisions that affect you, your loved ones and your property. This article discusses the many powers you have through your will and why you should exercise them.
Reasons to Include a Will in an Estate Plan:
- Dispose of Wealth the Way You Wish
Dying without a valid will is called dying intestate. If you die intestate your state’s law of descent and distribution (also known as the intestate statute) determines who receives your property . The distribution of assets contained in this statute is not how many people would want their property distributed. For example, in many states the surviving spouse receives two-thirds of the estate and any children receive the other third. Often, there is no provision for others or for charity.
You can override the intestate statute by validly executing a will. A will can save your family members time, frustration, and money. It also can help ensure that your assets are distributed as you intended.
- Plan for Philanthropic Goals
For many people, the estate plan includes philanthropy. They want to leave a legacy, sometimes to charities they supported during their lifetimes and sometimes to new causes.
In your will, you designate the charities to receive part of your estate and the amounts or percentage of your estate they are to receive. You also can determine which property the charities receive. While many people direct that cash be paid to charity, that might not be the best solution for your estate or the charity. Many charities will accept different types of property as gifts and bequests.
You also might consider giving in a way that helps both your heirs and charity. For example, you can set up a charitable trust in your will that pays income to one or more of your heirs for a period of time. Then, the property remaining in the trust goes to the charity.
Discuss your goals and the different options with your estate planner. Then, choose the best strategy for you and have it put in your will.
- Name Your Personal Representative (Executor)
An executor, administrator, or personal representative must be appointed to administer the estate and shepherd it through the probate process. (The term used depends on the state.) By executing a will, a person can specify who they would like to serve as their personal representative to manage their probate estate. The personal representative’s responsibilities include paying the decedent’s debts and expenses, deciding how property is going to be allocated among the decedent’s beneficiaries. The personal representative can also liquidate your assets, distribute the cash proceeds, or distribute your assets in-kind to the beneficiaries.
When there is no will, however, a court appoints someone to fulfill this role. The person appointed might be a stranger to you and your family or could be someone you wouldn’t have selected for this important role. The court-appointed representative might charge a fee. Because you didn’t leave a will expressing your wishes, the representative is likely to make decisions you wouldn’t have made or that would be contrary to what your heirs want.
- Restrict Your Children’s Access to Their Inheritance
You might desire to have most of your estate benefit your children or grandchildren. But they might be minors. Or one or more of them might be financially unsophisticated or irresponsible with money. A potential heir might have substance abuse problems, a lot of debt, or other issues. There are a lot of reasons why you might want a child or grandchild to benefit from your estate but also don’t want to have the assets transferred directly to the hands of the person.
When you don’t have a will, there’s no way to protect the individual or the wealth. The property will be passed directly to the individual as directed by state law. The only exception is when the individual is a minor. Then, the assets will be managed for the person until he or she reaches the age of majority.
You can achieve the joint goals of providing for the person and protecting the assets by leaving the property to a trust instead of directly to the individual. To do this, you need to have a will that creates the trust, sets its terms and names a trustee. The trustee will manage the property and make appropriate distributions to the beneficiary.
- Life Insurance
Insurance proceeds that are payable to a person’s estate, are distributed as part of their general estate, according to the terms of the person’s will. If you die without a will, insurance proceeds are distributed according to the state’s law of intestate succession. If life insurance is payable to your estate, or you didn’t name a beneficiary in the life insurance policy, you probably want a will that states how the insurance proceeds should be distributed.
- Name Guardians to Care for Minor Children
If a parent has a child or children under the age of 18, the only way they can indicate who they would like to be the guardian of their child or children is by a provision in their will.
How to Execute a Will in an Estate Plan
A will needs to be signed in the presence of witnesses and certain formalities must be followed for the will to be valid. The specific requirements vary from state to state. That’s why it’s important to have your estate plan and will updated after moving. A will that is valid in one state might be invalid in another state.
What a Will Does Not Do in an Estate Plan
A will does not govern the disposition of a person’s assets that are controlled by beneficiary designations, by the title to property, or by operation of law. Such property includes those held in joint names with rights of survivorship, payable on death accounts, life insurance, retirement plans and accounts, and employee death benefits. These assets pass to the beneficiaries upon the estate holder’s death. A person’s will is not applicable to them unless they are payable to the person’s estate.
Assets held in trusts, including revocable living trusts, also aren’t distributed under the will, unless the trust specifically says an individual can change its terms through their will.
A will does not control the transfer of certain types of assets, called non-probate property — for example, real estate and other assets with rights of survivorship pass to the surviving owner.
Simply executing a will is rarely sufficient to accomplish all your estate planning goals. But the will is essential to every estate plan, because it controls the disposition of many assets, as well as other important decisions.
