As we roll into the last months of the year, many people take time to update their financial estate planning and put their financial houses in order. Revising or writing a will is an important part of the Estate Planning process. A will can decide who receives your property, on what terms they receive it, who becomes the guardian of minor children, who controls a business or other entities, and how much of your wealth goes to the government and other expenses.
Yet, an outdated will or a mistake in its drafting can negate your planning. Here’s a guide to some important steps and thoughts for revising or creating your will.
Seek an inquiring lawyer. Too many estate planning attorneys focus on the technical nuts and bolts of a plan. Some also try to fit clients into cookie-cutter or model estate plans. They think they know what your plan should be soon after you begin talking.
A good estate planner first tries to know you, all about you. Of course, a planner needs to know about your assets, liabilities, and such. But a good planner also will ask about your family, charitable interests, and personal concerns and pursuits. The planner learns your goals, ambitions, and concerns for all of these things. Only then, and after some research and thought, does the planner show you different ways of trying to meet those goals, explain the trade offs in each method, and help you choose which route to take.
This type of lawyer might cost you a bit more, since the lawyer takes the time to learn more about you. But it should result in better results for you and your loved ones.
Outline your plan. You should write the basics of what you want in your own words. You don’t have to identify specific types of trusts or things of that nature. Instead, state generally which persons, charities, and any others should receive part of your estate and how much each should receive. If you want restrictions or conditions, write your thoughts on those. For example, some people want children to receive only income or a maximum annual amount until they reach a certain age. After that, the children can receive whatever is available. Talk your ideas over with the estate planner.
An estate plan often is a process with several stages. Your ideas are likely to change at least somewhat during the process. As each stage, you should again write in your own words what you believe the plan will do and share that with the planner.
Don’t give the children an opportunity to fight. The children might seem to get along and be well-behaved while you’re around. But there could be lingering animosity, sibling rivalry, or something similar. Your presence might be the only thing keeping these forces in check.
It doesn’t matter if you believe your estate isn’t particularly valuable. Family disputes over an estate often occur over seemingly small items or perceived slights.
Try to eliminate as many potential points of dispute as you can. Consider whether it is appropriate to name one or more of the children as executor when there is someone more independent available. Also, carefully consider how the personal items of your estate will be handled. Many people state simply that the children will determine how to equally divide the items. If the children can work together, that’s fine. If they can’t, that’s a recipe for disaster. There are other methods available. We discussed these most recently in the December 2014 issue.
Review specific bequests in the will. A specific bequest is when a particular property or a certain amount of money is bequeathed to a person. Specific bequests are appropriate for personal or unique items, especially those that are valuable or sentimental. Otherwise, specific bequests should be limited. Too many specific bequests can cause problems.
For one thing, you have to update your will every time you sell, give away, or otherwise dispose of one of the items. There are potential problems if an item can’t be located after your passing or someone thinks one item should be paired with another.
More importantly, the value of your estate is likely to change. When one or more people are given specific property or amounts of money, their shares of the estate could be more or less than you intended as assets values change.
It is better to limit specific bequests and have all the other items disposed in the “residuary clause.” This is the clause that says “all the remainder or residue or my estate goes to…” Normally this clause gives property to the spouse or divides it among the children. When giving a specific amount of money, you might want to use a formula, such as, ?my brother, Tom, receives $10,000 or 1% of my estate, whichever is less.? You also might want to take this approach with charitable gifts.
Consider factors outside the will. Some types of property can’t be bequeathed through the will. Jointly-held property usually is transferred by law to the co-owner after one owner dies. IRAs, employer retirement plans, life insurance policies, and annuities are controlled by the beneficiary designation forms. Any property owned by your Living Trust or any other trust is controlled by the terms of the trust, unless when the trust was created you reserved the power to change the trust terms through your will. Review all these items and determine if they need to be revised.
In many states, your will has no legal effect over what is done with your body, how your funeral or memorial service is arranged, or anything of that nature. You can leave directions in your will or other documents for your executor and relatives, but they are under no legal obligation to follow your wishes.
You also can’t direct the care of a disabled person or minor in a will. It is better to do this through a trust that is set up either in your will or during your lifetime. The trustee has to follow the directions in the trust agreement.
Seek a second opinion. You do this with other important decisions. Consider doing it with your estate plan. After the plan is complete, consider taking the documents to another estate planner. Ask him or her to review them and then explain them to you. Encourage questions and discussion. This should make it more likely that you fully understand the plan and that it achieves your goals.
Keep up with the times. Once a plan is in place, it needs to be revised for changes in your life, the tax laws, and other events.
The estate planner keeps up with changes in the tax code and other laws. You need to tell the planner of any changes in your family, goals, and wealth. You need to meet with your estate planner when a child or grandchild is born, there is a marriage or divorce, or someone dies. Changes might be needed when you move to or buy property in another state. Also check with your estate planner when the amount of your wealth changes or when you consider selling a significant asset.