The idea of creating a will might have crossed your mind a time or two, but few people actually follow through on the idea: Only 32% of Americans currently have one! Whether it’s because they think they don’t have enough money to justify a will or because they don’t want to take the time to create one, many people pass away without a plan and leave their loved ones to pick up the pieces.
Creating a will is a great first step to estate planning, but we’ve found that many clients have misconceptions about what a will does and doesn’t do. We want to help clear things up!
A Will Can…
Distribute your assets. A will specifies how your money, property, personal belongings and other assets are distributed to friends, family, charity or any other beneficiaries you choose to include.
Detail any final wishes. If you have specific instructions for your funeral, like whether or not you want to be cremated, you can include those in your will. You can also include specific requests of your loved ones, like using certain funds for college or keeping the tradition of a family cabin weekend.
Appoint an executor. This person is in charge of carrying out the wishes outlined in your will. They may have to make decisions on your behalf if anything is unclear from your will, so designate someone you trust.
Assign guardians. Any minor children or pets will need someone to take care of them if something were to happen to you and a will is the place to designate who you want in that role. If you don’t have a will with named guardians, someone who you may not prefer could end up taking care of your dependents.
Disinherit people. If there are certain people, such as an estranged family member, that you do not want to inherit your assets, you can choose to exclude specific people from your will.
Help minimize probate. When you pass away, your will goes through a court-supervised process called probate to determine its validity and ensure all of your assets are distributed correctly. Probate isn’t avoided by creating a will, but it can help minimize some of the time, money and energy your loved ones will spend navigating probate. If you want to avoid probate entirely, you may want to consider creating a trust.
A Will Can’t…
Guarantee any wish. Online wills have become a popular option for people looking to create a low-cost will, but it’s possible to add terms to these DIY wills that are potentially illegal. Just because you write it, doesn’t mean it’s legally binding.
Control all of your assets. Certain assets, such as jointly owned property, are not controlled by a will. It also does not override the beneficiary designations included on insurance policies or retirement accounts like 401(k)s, 403bs and IRAs. Make sure your beneficiary designations are up-to-date to avoid unintentionally leaving your assets to the wrong person.
Eliminate estate taxes. Minnesota charges 13% to 16% on estates worth more than $3 million, and listing your assets in a will doesn’t prevent you from paying these taxes. However, thinking proactively about how you will pass your assets to the next generation can help you do so in a more tax-efficient manner.
Remain private. Wills are public documents, which means anyone can read the details. You should avoid disclosing any personal information you don’t want others to know.
Make medical decisions. If you become incapacitated, a will does not provide instructions for your medical care. You’ll need to create a living will or durable power of attorney to communicate your medical wishes.
Complete your estate plan. As this list makes evident, a will is not a comprehensive document. A comprehensive estate plan includes things like advance directives and trusts to ensure your end-of-life wishes are followed through and that your assets are inherited correctly.
Why Create a Will?
If a will has so many restrictions on what it can do, you may be wondering if it’s even worth the time and money to create one. Dying without a will is called dying intestate, which means a probate court will appoint an executor over your will who will distribute your assets according to your state’s intestacy law. This can take years to sort through, causing painful family arguments and costing your loved ones thousands of dollars in legal fees.
A will is also a critical part of your overall financial plan. You’ve worked hard to save money and create enough assets to enjoy the type of lifestyle you want. When you pass away, you want to make sure that legacy carries on to the next generation with the same amount of care and attention. Proper estate planning can help ensure your assets are passed on in the most tax-efficient way possible, providing for your loved ones for years to come.
Who Needs a Will?
Young or old, anyone who has assets should consider making a will, no matter how much or little you think you may have. If you own a home or have a savings account, you have assets! If you’re married or have children, putting a will in place helps ensure your loved ones are protected and provided for if something were to happen to you.
Remember to regularly update your plan as life goes on. Maybe you have more kids, move states or receive a large inheritance from a distant relative. All of those events can impact your will! Plus, estate planning laws can change over time. We recommend reviewing and updating your will every 10 years, at minimum.
If you want to get started on your own estate plan, look for a local certified estate planning attorney. They will be up-to-date on all the specific laws in your state and can help you draft a will that is legally valid to avoid any issues in probate. Working with an estate planning attorney might be expensive upfront, but you will save yourself and your loved ones money, time and heartache down the road by having a solid plan in place.
Many fiduciary financial advisors work closely with a trusted estate planning attorney to ensure their clients’ plans are drafted correctly and efficiently. Estate planning is an important piece of the financial roadmaps we build for our clients, and we would love to help you get started today.