Wills are not only for the rich. A will can be the primary document for transferring assets you may have upon death. Three major provisions should be included in a will:
- Appoint a Guardian for Your Children. A will should name a guardian for minor children in the event that both you and your spouse die. Make certain that the person you elect is willing to accept the responsibility.
- Create Trusts. All a will can do is direct the disposition of your estate. To accomplish longer-term goals, such as funding a child's education or providing for an elderly parent, you may need to include instructions for the creation of trusts at your death.
- Name an Executor. Your executor is your personal representative after your death. He or she has several major responsibilities, including administering your estate and paying all your debts/expenses; making certain tax decisions; ensuring all life insurance and retirement plan benefits are received; filing necessary tax returns, plus paying the appropriate federal and state taxes; and then distributing all assets to your beneficiaries (outright, within a custodial account, or within a trust).
You should also be sure to review your will periodically. It may need revising if:
- You move to a different state
- Your financial situation changes
- You add another dependent, be it a child or aging parent
- You make a change in your life insurance
- Your heirs change marital status, have children, or die
- Your guardianship plans change
- You acquire property in another state
- You inherit or purchase property
- Your property increases substantially in value
- There is a change in tax laws
To change a current will, you must execute a new one or amend an existing one. Don't try to change your will by writing in or crossing out something. Changes made in this manner are meaningless, and may even void the entire will. See your lawyer to make any changes.
Why a Basic Will May Not Be Enough
A will can be a good foundation for preserving your wealth because it outlines your wishes. It directs the disposition of personal belongings after you die and lets you designate a guardian for your younger children. But a will does little, if anything, to address how taxes affect your estate.
In fact, relying on a will as your sole estate taxes and conservation tool can cost you much more than peace of mind and money. Some important facts about wills you should consider:
- Your financial accounts may be frozen.
- The probate process may be lengthy, with your assets and bequests subject to the claims of heirs and creditors.
- Probate and estate settlement costs may decrease the size of your estate.
- Your will is a public document.
- Interpretations of wills can vary from state to state. For example, your will may be interpreted differently if you die in a state other than where it was originated.
- Your will may not control all your property (such as properties with joint tenancy titles and beneficiary designations).
- Your will could be contested.
- Assets left to your spouse are subject to federal estate tax upon his or her death. Also, state inheritance or death taxes may apply.
What's more, should you become incapacitated or incompetent, a will cannot make provisions for your care.