The biggest mistake when it comes to wills is not having one at all.
Only a third of Americans currently have a will, while 63% say they do not, according to our most recent U.S. Financial Capability Study. It's even worse for those with kids—only 28% of respondents with financially dependent children have a will. If you are one of those Americans without a will, vow to make it happen. Here are five things you should know to get you started.
The biggest mistake
when it comes to
wills is not having
one at all.
1. What Happens if You Don't Have a Will?
If you don't have a will or any other end-of-life plan when you die, you'll become what's known in legal terms as intestate, and a court will go through an often lengthy legal process to determine your rightful heirs and a guardian for your minor child(ren) if you were the sole surviving parent. Each state has their own "statutory will" that decides who gets what when it comes to your assets. And, of course at this point, you'd have no say in it.
All that said, some types of property—such as the assets in your employer-sponsored retirement plan or IRA, proceeds of a life insurance policy, and payable on death or transfer on death accounts—will automatically pass to your named beneficiaries. Similarly, any financial accounts or real estate holdings that are titled as "joint tenants with right of survivorship" generally will become the property of the joint owner.
2. Will or Living Trust?
When preparing your end-of-life plan, you will likely choose between a will and a living trust—or perhaps even both. The American Bar Association has helpful FAQs that can help you understand these choices.
Briefly, if you have a standard will, you, "the grantor," designate an "executor," someone who will have legal responsibility to carry out your will's instructions. That person will be responsible for filing your will with probate court—the court that deals in the administration of estates—and managing your assets during the probate process. In some states, this process can be lengthy and might include several fees.
With a living trust, your heirs can often avoid having to go through the probate process to determine who gets what, because your assets would be transferred into the ownership of a trust. Instead of appointing an executor, you would appoint a "successor trustee" to head the trust after your passing. While you are alive, you can manage the property you put into the trust, and you can empower the trustee to manage the trust if you become incapacitated.
Additionally, a living trust may provide more privacy. Typically, once a will enters a probate court, it becomes a public document. That means anyone can request to see it. A living trust is generally shielded from such requests, except in cases of litigation.
3. To Hire an Attorney or Not?
You are not required to hire a lawyer to draft a will, but it may be a good idea to ensure that the document is valid. Each state has different requirements for a valid will. Some states may require two witnesses instead of one, or they may require a will be notarized or filed with the court.
If you can, you want to avoid any situation that would elongate the probate process for your beneficiaries. While having no will at all would do just that, unclear language could also prolong the process.
You also want to make sure you update your will after important life events, such as the birth of a child or the purchase of a new home. And don't forget to let your heirs know where to find the paperwork.
4. Individual vs. Joint Will?
You may think that sharing large assets with your spouse means you should have a joint will. But estate planning lawyers often recommend an individual will instead.
Typically, a joint will bequeaths all of a couple's assets to the surviving spouse, and then provides for all of those assets to then go to the children upon the death of the second spouse, which seems in line with what many couples may want.
However, most joint wills also contain a provision that neither spouse can change or revoke the will alone. That may cause problems for the surviving spouse down the line, as it may restrict the surviving spouse from selling the family home or any other assets covered by the will.
5. Will there be anything left?
Life is complicated, including death—and the last thing most of us want to do is leave our heirs a "negative" inheritance of debt. While many people imagine passing in their sleep at a very old age, after they've carefully settled all their affairs, death is often unexpected. And the reality is many Americans don't prepare for retirement and unexpected expenses. More troubling, we are all vulnerable to aging's cognitive declines, which for many can lead to impaired decision-making.
Here are three steps to help build a positive legacy:
- Start an Emergency Fund. Almost half of U.S. adults (46 percent) have not set aside funds sufficient to cover expenses for three months in case of sickness, job loss, economic downturn, or other emergency.
- Revisit your retirement. Only about half of Americans have tried to figure out their retirement savings needs.
- Prepare for the unexpected. Long-term Retirement Planning includes understanding beneficiaries, power-of-attorney, and living wills.