What Is a Last Will and Testament?
A last will and testament is a document that provides instructions on where you want your assets to go at your death. Wills can be very basic and short, or long and complicated. The contents of your will are dictated by the size of your estate, your wishes, the type of property you own, and a variety of other factors.
Two critical things you must understand from the outset:
1. Certain assets do not pass using the probate process. We call them non-probatable assets — and they will not follow the instructions of your will.
2. Minors cannot inherit property. If assets are left without proper planning, chaos will result.
Probate vs. Non-Probate Assets
Non-probatable assets include 401(k)s, IRAs, joint property, life insurance, and annuities. One other class includes accounts with a "payable on death" clause. Before you can even begin to write a will, you must know which assets will pass according to the will and which ones will not.
For example, if your house is owned jointly with your spouse, and your spouse is the primary beneficiary of your retirement plans, the vast majority of your estate may go directly to your spouse regardless of what your will says. This does not mean you don't need a will — you will almost certainly leave some assets that are subject to probate, and your spouse could pre-decease you or die in a common accident.
Why This Matters More Than You Think
Many people believe all their assets will pass to their spouse because that's what their will says. Consider an individual in a second marriage: the willmaker may believe their new spouse will get everything, but they forgot to change the beneficiary designation on their life insurance policy. This happens frequently.
Another issue involves a person with children from another marriage. If their will leaves everything to their current spouse, they will unintentionally disinherit their own children.
The Basic Construction of a Will
Step 1: Decide Who Gets What
Either by making specific bequests ("My daughter gets the house") or by percentages ("Each child receives an equal share"). This is the foundation of the entire document.
Step 2: Create a Trust for Minors
Even if your children are grown, the default is that any surviving children — your grandchildren — would receive their share. It is always safer to add a trust than not, and it adds no expense. However, you must choose a trustee to manage the trust and make distributions from it. See our article on Dealing with Minors for a deeper look at this issue.
Step 3: Name an Executor
This is normally a spouse but can be anyone you want to carry out the wishes outlined in your will. You may give specific instructions to your executor — selling property or stocks before making a distribution, paying certain debts and not paying others, and so on.
Step 4: Name a Guardian
For any minor children — biological or adopted — you must name a guardian. This is one of the most important decisions in any estate plan, and one that many parents delay far too long.
What's Next?
A will is just the starting point. A complete estate plan typically includes powers of attorney, medical directives, and — depending on your situation — a living trust, FlexTrust LLC™, or other asset protection structures.
The most important thing is to start. A basic plan done today is infinitely better than a perfect plan you never get around to.
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