Everyone has heard of wills, but many people don’t know some key facts about them. A will is essential to every estate plan and is a very powerful document.
Many people are surprised to learn what they can do in a will, but they also are surprised what a will can’t do. First, there are some basic terms and concepts you should know.
A will (or last will and testament) is a written statement of your instructions and intentions about your estate. (About 20 states allow oral wills, but only under limited circumstances.) As the maker of the will, you’re known as the testator. The person who oversees the processing of your estate and the carrying out of the terms of the will is known as the executor, administrator or personal representative, depending on the state.
When you die without a will, that’s known as dying intestate. When you die intestate, state law determines how your property is distributed. Dying intestate can be more expensive than preparing a will and estate plan, because the courts are likely to be more involved. The court probably will appoint someone you don’t know to act as executor and allow that person to charge a fee to the estate.
When you leave someone’s property under the will, that’s known as a bequest and the person receiving the property is a beneficiary.
The process under which your will and estate are administrated and settled is called probate. In some states there’s a separate probate court. In others, a family court or the regular district or circuit court handles probate.
More than property.
Most people associate wills with the distribution of property, and that is the largest component of most wills. But you can give other directions under a will.
You can appoint one or more people to serve as executor to administer the estate. If you get this decision wrong, at best there will be delays and additional costs in the processing of your estate. The wrong appointment also can lead to conflict among potential heirs and even litigation.
In the worst case, the executor tries to ignore the wishes in your will by stealing property or directing it to beneficiaries you didn’t intend. If you have minor children or dependents, you can designate their guardian or guardians in the will. If you don’t, state law will determine who becomes responsible for them.
You also can include any desires you have concerning the funeral, memorial service and what’s done with your body. In some states, these directions in a will are binding, but in others they are treat-ed as suggestions and preferences.
In the will, you can disinherit anyone who might be considered a natural object of your affection or who would inherit under state law if you had died intestate.
The only exception in most states is your spouse. Spouses generally inherit a minimum portion of the estate (usually one-third or two-thirds) unless there is a valid premarital or post-marital agreement in which the spouse waives all or part of this right. There are different reasons someone might be disinherited in a will. Some people disinherit a child who’s done well financially and doesn’t need additional wealth, especially when other children could use the support.
A child also might be provided an inheritance through a trust, life insurance or jointly owned property that isn’t subject to the will. So, they aren’t left anything in the will.
Of course, someone might be disinherited because they are estranged from the testator, have been irresponsible with money, or have substance abuse or gambling problems.
Whatever the reason, when you disinherit someone who would be considered a natural object of your affection, you should specifically name the person in the will and state that you knowingly and intentionally aren’t leaving them anything. You can provide a brief reason, but you don’t have to do so.
If you don’t do this, the person could argue in court that leaving them out of the will was unintentional. An alternative to disinheriting someone is to leave them a modest inheritance.
A will can be challenged by anyone who might have an interest in your estate. The most common will challenges allege that someone exerted undue influence over the testator or that the testator had diminished mental capacity. These challenges usually argue that a prior will or state law should be used to distribute the property.
Sometimes a challenge alleges a technical fault in the will submitted to the court, such as that it wasn’t properly witnessed.
You can reduce the potential for a will challenge by adding an anti-challenge or in terrorem clause. The clause states that anyone who challenges the will and loses doesn’t receive anything from the estate. Most states allow such clauses.
Doesn’t cover everything.
You can’t control the disposition of all your assets through your will.
Some assets go to the people named in beneficiary designation forms. These assets include retirement accounts, annuities and life insurance. If you didn’t name a beneficiary or the beneficiary passed away, the policies of the asset administrator or state law determine who inherits.
When you own an asset jointly with someone, the co-owner usually becomes sole owner automatically after you pass away.
Many people set up financial accounts with a transfer on death (TOD) clause. These assets avoid probate. The beneficiary named in your TOD clause takes sole ownership after presenting a death certificate to the financial services firm administering the account.
Assets owned by a revocable living trust also aren’t affected by your will and probate. The trust terms determine who benefits from these assets. The trust terms also decide who becomes successor trustee after you pass away. All these assets avoid probate. Be sure you include them in the review every time your estate plan is updated. Keep the original copy safe and available.
The lawyer who prepares your will keeps copies and might provide you with copies. But most states require the original will, not a copy, to be submitted for probate. If the original isn’t available, the court will review copies but doesn’t have to follow the copies exactly. Not having an original will also makes it easier for a will to be challenged.
Many people keep their wills in a safe deposit box at a bank or other financial institution. That can cause problems when the testator is the only one legally authorized to have access to the box. Then, a court order is needed for survivors to gain access to the box and the will.
It is better to keep the original will in a waterproof and fireproof safe in your home. Wherever you keep the will, be sure the executor and one or two key family members knows where it is and are able to gain access to it.
Trusts and wills.
You can integrate your will with one or more trusts in several ways.
You can create a trust in a will. Suppose you want to leave a portion of your estate to your children, but they are minors or financially unsophisticated. Your will can state that the property will be transferred to a trust for the children’s benefit. The trust agreement can be attached to or be a section of your will.
You also can create a revocable living trust to hold and manage most of your property during your lifetime. Then, it converts to an irrevocable trust on your passing. Your will can state that property covered by the will is transferred to the trust and administered according to its terms.
Or you can create a trust during your lifetime but not transfer any assets to it. The trust receives assets under your will.
These last two arrangements often are known as pour-over trusts, and the will might be referred to as a pour-over will.
Strings and conditions.
You can put any condition on a gift or be-quest if it isn’t against public policy. The courts generally have allowed any restriction that isn’t race-based and doesn’t violate or encourage the violation of any law.
You can place almost any other condition in the will or a trust. You even can make gifts contingent on the beneficiary’s being married, staying married or being employed, among other things.
There’s a question of who is going to enforce such restrictions. Technically, it’s the executor’s responsibility to monitor events and ask a court to get the money or property back if the conditions are violated.
But I wonder how many would take this action. Someone who would receive the property under the will if the conditions are violated probably would be able to ask a court to act.
Other than that, the state attorney general or a similar official probably has standing to sue to ensure the state’s laws are respected, but it is questionable whether he or she would find out about the events and choose to spend resources on a lawsuit.