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What is a will, and why should I have one?
A will is a document that specifies who will inherit your bank accounts, real estate, jewelry, cars, and other property after you die. You can leave everything to one person or allocate specific possessions to separate individuals, such as your video game collection to your brother, or your sweaters to your best friend.
But a will is much more than a way of distributing your property when you're gone – especially if you have kids. For parents, making a will is the single most important thing you can do to make sure your child is cared for by the people you would choose if anything should happen to you.
In your will, you can designate a person (guardian) to care for your children if you die before they become legal adults. And you can designate a property guardian or trustee to manage your children's inheritance until they reach adulthood. You can appoint one person to act as both personal and property guardian, or choose two people to carry out each role.
If you'd like to streamline the wrap-up of your affairs after you're gone, you can name an "executor." An executor pays your debts and taxes then makes sure the rest of your estate goes to the people you've chosen.
You can also use your will to:
- Make charitable contributions
- Donate organs
- Specify funeral arrangements
- State your preferences about life support with a living will, healthcare directive, or directive to physicians as a separate document
One caution: Certain assets – such as life insurance policies, 401(k)s, and IRA accounts – have beneficiary forms that supersede wills. That means the funds in these accounts are distributed to the persons you named as beneficiaries, no matter what you specify in your will. Be sure to check the beneficiaries on these accounts (and make any changes) so they match the ones listed in your will.
What happens if I die without a will?
Without a will in place when you die, there's no guarantee that your assets will go to the people you want or that your children will be cared for by the person you believe will do the best job.
This may come as a shock, but if you die without a valid will, state laws require that your property be divided according to a fairly inflexible formula. In most states your spouse, if you have one, would receive only about one-third to one-half of your estate. The rest would be earmarked for your children.
That may sound fine, but without a will, some states appoint an administrator (who charges fees for the service) to manage your children's inheritance until each child turned 18. That means your partner wouldn't be able to access the money to help raise your children without going through a very complicated legal procedure. And even if the courts decided that your spouse could hold the funds earmarked for your children in trust, your partner would have to provide the court with an annual accounting of how the money was used.
If you and your partner both die without a will, the state courts and social services department would appoint someone to raise your children. And that person might have very different ideas about parenting than you do. Even if you think you have almost no property to leave your children, it's worth making a will to make sure you get to choose their guardian.
Do I need a lawyer to make a will?
Not necessarily, but you'll need to invest a lot of time, energy, and probably a little money to do it yourself the right way. Many families have written legally valid wills by using a self-help book or a will-writing software program, although mistakes are more likely with a do-it-yourself will.
Here's a good rule of thumb: If the cost of using a lawyer is holding you back from writing a will, buy a self-help book and do it yourself. Nolo, a respected legal publishing house, has books and software for sale online. Check Nolo's wills and estates area for the latest editions. Or ask your public librarian to recommend current books on the subject.
On the other hand, if the thought of plowing through pages of legalese is too daunting, call a family lawyer. Ask your family or friends for recommendations. A lawyer can cost you anywhere from a few hundred to a few thousand dollars, but the money buys you expertise and peace of mind.
To save money, think through what you want to include in your will first and then contact a lawyer to go over the details. Check whether your employee benefits include free legal consultation. Such consultations may be limited to 30 minutes, but that could be a very helpful half hour.
Here are a few ideas to get you started:
- Make a list of all your assets, including bank accounts, investments, real estate, life insurance, and personal property.
- Decide exactly whom you want to inherit what, and when. For instance, you might want your daughter to inherit her grandmother's gold bracelet when she turns 16.
- Choose a guardian for your children.
- Choose an alternate guardian in case your first choice is unwilling or unable to do the job.
- Choose that person you want to handle the assets you leave your children (if you want that to be someone else besides your children's guardian.
- Choose an executor to carry out your wishes and handle the necessary paperwork.
- Decide whether you want to include a letter stating how you'd like your children to be raised and educated, your funeral to be arranged, and so on.
You can get more useful suggestions, ideas, and free sample forms online by searching for "will and testament forms" or similar terms. But most experts argue against relying solely on online resources for the many important legal decisions a will requires.
What makes a will a legal document?
Several requirements make your will a legal document:
- It usually must be typed or computer-generated. Handwritten wills are legal in some states.
- You must state somewhere in the document that it is your will.
- You must date and sign your will.
- You must sign your will in the presence of at least two witnesses (three in some states, such as Vermont), and your witnesses must also sign.
A legal will doesn't have to be notarized (except in Louisiana), nor does it have to be recorded or registered with any government agency.
After your will has been signed, put it in a safe and fairly obvious place such as a locked metal file cabinet or at your attorney's office. Be sure to tell your spouse, partner, or executor where it is. You may want to keep an easily accessible copy at home that notes where the original is stores.
Safe deposit boxes are not always a good place for wills because many banks have restrictions on who can access and remove things from them. If a family member or executor can't open your safe deposit box, it could tie up your estate for some time. Make sure you understand your bank's rules about withdrawals from safe deposit boxes before putting your will in one.
For many families, emotion is the greatest hurdle to creating a will. To make things easier and maybe even fun, make a pact with another family or two to get your wills done at the same time. Since you need at least two witnesses not named in your will, get together and sign each other's documents over bagels and coffee or wine and cheese. This can take a lot of the intimidation out of the process.
How can I make sure my child is taken care of if I die?
To ensure your child is protected and provided for, start by following these steps:
Make a separate legal will for each parent. Joint wills don't make a lot of sense, even if it seems more efficient to create just one document. A joint will binds the survivor to the provisions of the will, which doesn't leave a lot of room for the surviving parent to make changes if circumstances change radically.
Name your spouse or partner as your sole beneficiary. Otherwise the court might divide your property between your partner and children and appoint a state administrator to oversee your children's property until each one turns 18. Name your children as alternate beneficiaries in case you and your partner pass away at the same time.
State that your spouse or partner is to be the guardian of your children in case one of you dies. Spelling it out prevent someone from coming forward and disputing the custody of your children. If you don't name a guardian, anyone who's interested can ask for the position, leaving a judge to decide what's best for your children.
Name an alternate guardian in case your spouse is unwilling or unable to care for your children. Choosing a guardian is probably the most difficult task for parents. It's hard to imagine anyone else parenting your children, but it's also one of the most important things you can do to ensure your children's future well-being. To find out what questions to ask yourself and how to make this decision, see our article on choosing a guardian.
Name a trustee to manage the property you pass on to your children until they become legal adults. If you don't name a trustee, the court will do it for you.
You can choose one person as both the guardian and trustee or choose two different people. Experts disagree on the best way to handle this. Some say it's easier to choose the same person to care for your children and their inheritance, while others warn that people who make good parents may not be the best at handling money. Think this one through and talk it over with your partner.
What's the best way to leave property to my child?
There are many ways to leave property to young children. According to Steve Elias, editor of The Quick and Legal Will Book by Nolo, the following are some of the most common. In each case, you need to choose someone to oversee the transfer of your assets.
You can name a property guardian to handle your finances on behalf of your growing children. A property guardian is appointed by the court, according to the instructions in your will, and the court closely monitors his actions.
A property guardian is required to file a beginning and ending inventory of your estate as well as annual paperwork on how he's managing the assets. Any decisions she makes are subject to court approval. A property guardianship ends when the child turns 18, at which point your child can spend the money and take responsibility for any other property with no restrictions.
Although this is the least complicated way to pass property to your children, it can be very burdensome for the person you name as property guardian. However, if you're not fully confident that the personal guardian you choose will make solid financial decisions, you may welcome the court's oversight. Otherwise, you might prefer one of the options listed below.
Custodial account (Uniform Transfer to Minors Act)
If the person you plan to name as your children's financial trustee or property manager has a history of making solid financial decisions, consider leaving assets to your children in custodial accounts. The courts have no oversight over these accounts, which are governed by the Uniform Transfer to Minors Act (UTMA).
UTMA is the same across nearly all states, so the property manager (also known as a custodian in this case) will be recognized by most financial institutions immediately. That recognition makes the job smoother and easier. Any bank or stockbroker can set up a custodial account for you in minutes.
A trust fund is most useful if you have complex assets that you'd like to pass on to your children, such as a family business or significant amounts of money or property.
A trust fund gives you much more control. It allows you to name the age at which distributions are made to your children, parcel out a little money at a time, and restrict how the funds are used. You can create the trust and appoint a trustee in your will. That person will then need to open a trust account at a bank or brokerage firm and file a tax return for the trust each year.
One downside: Because trust funds are individually tailored to meet each family's particular circumstances, the financial trustee you name for your children has to provide more paperwork to banks or stockbrokers to document his decisions.
A living trust (also called a revocable trust) is simply a trust you establish while you're still alive, with yourself (and your partner) as the trustee so you have full control over your property and assets. A living trust should name an alternative or successor trustee who will take over if you should die or become incapacitated.
It's often called a revocable trust because you can change the terms easily, without involving a lawyer: You can change beneficiaries, add or remove assets, or make other adjustments at any time. (But you should get an attorney's help drawing up a living trust to ensure it's done correctly.)
A living trust may allow your family to avoid the time and hassle of going through probate court and remains a private document, unlike a public will. But it's still a lot of work: All assets you want to include need to be transferred to the trust – such as bank accounts and the title to your home. Any assets left out of the trust could moved into it upon your death by creating provisions in what's called a "pour-over" will, but those additions would need to go through probate court.
Do I need to worry about taxes eating up my child's inheritance?
As of 2017, the lifetime gift tax exemption is $5.49 million per individual – the same as the federal estate tax exemption – meaning you can leave up to $5.49 million to your children without worrying about estate taxes. Couples can together leave up to $10.98 million.
Keep in mind that life insurance policies, pension benefits, and real estate all count toward your total assets. (This is the different from the annual gift tax exclusion, which is $14,000 as of 2017.)
If you know or suspect that your estate will be worth more than the exemption amount, talk to an estate attorney about how to minimize the tax burden on your children.