You have probably heard a lot about wills and trusts, and while they are similar, they achieve different objectives. Here are some of the differences between wills and trusts:
You can name who you want to take care of your minor children in your will
- Wills are subject to probate
- Wills become a matter of public record
- Wills generally cost less to prepare but carry additional costs in probate
- Trusts avoid probate
- Trusts remain private
- Trusts cost more but save in probate
These two columns may make the trust sound more attractive, but for some, the extra cost in setting one up is prohibitive. There may be no need to go to all that expense and effort if your estate is small and simple. Many people only have a will, and things work out quite well for them. For fast, easy and affordable assistance in this matter, we suggest www.legalzoom.com
What exactly is a will?
This legal document states with whom you want to leave your possessions. You can list beneficiaries and the specific properties they will receive. Your executor, or the person you designate to handle all your after-death wishes, will be the one who sees to it that your daughter receives your book collection and your sister receives the antique custard cups.
Perhaps more importantly, you can name who you want to take care of your minor children in your will. Probate court has the authority to change your appointment, but they rarely do. You must talk to the person you've picked to be responsible for your children. Surprises, in this case, are not a good idea. You will sleep better at night knowing that the person or couple you want to take this responsibility is in is in full agreement and is willing to take on the task.
If you die without a will or a trust your rights and wishes will be turned over to the court. The laws in your state will decide who gets your money, your house and your children.
Making a will does not have to be expensive
It depends on your situation and the complexity of your estate, but you can generally make your own will legally and without any assistance from an attorney. You can purchase excellent software for your computer that asks you questions and has you fill in the blanks. When you're done, you have a comprehensive will. All you need do is follow certain legalities, such as signing it in front of witnesses. Make sure you talk to the person you want to act as your executor. Don't let these things ever come as a surprise to anyone.
Be sure to consider the following list when preparing your will.
- What property do you own? You've probably collected many things over the years, and know who would appreciate them most.
- List the names of the people you plan to name as beneficiaries.
- Don't forget to list contingent beneficiaries, in case your initial choices pass away before you.
- Choose an executor and an alternate executor.
- If you have children who are minors, choose a guardian for them.
- If you want to put conditions on your gifts, then choose the person or people you want to manage certain things, like money left to young adults or college students.
- Print your will, look it over and sign it in front of witnesses.
- Some wills should be signed in front of a notary such as wills that provide a "self-proving affidavit," which is designed to make probate go more smoothly.
- Keep your will in a safe place, like a safe deposit box, and let your executor know where to find it, or give him/her a copy.
What is a joint will, and is it a good thing?
In a joint will, a couple makes one will together. They each leave everything they own to each other. The will also specifies who will get whatever is left when the second surviving person in the couple passes away.
When you make out a joint will, it is impossible to change after the first person dies. This might be a good thing if you want to be completely certain about what will happen to your estate if you die before your spouse. Life and situations can change so much, however, that it might not be a good idea to cast everything in stone, especially if you're fairly young.
If you and your spouse make separate wills, you must remember that you can only leave your own personal property and your own share of any joint property to others. If both your names are on the title to your house, you can't leave the house to your mother, for example.
Speaking of couples: What property is yours? What is your spouse's?
This depends on where you live, first of all. If you live in a community property state, things are a bit more complex when it comes to wills and who gets what. The current community property states are California, Idaho, Louisiana, Texas, New Mexico, Washington, Nevada, Wisconsin, Alaska (with certain provisions) and Arizona.
In a community property state, the money earned by either one of you during your marriage is considered the equal property of both individuals. This goes for debts, as well.
Some property remains separate. What you earned or purchased or anything that was gifted to you before your marriage remains yours. Gifts given to you alone during your marriage also remain yours to do with as you will.
If you and your spouse don't agree with the rules of community property, then you can write up a document (or have your attorney do so) that makes some or all of a person's earnings that person's alone.
If you don't write up a document and you don't understand the rules about community property, you could be taken by surprise if you think the car you bought during your marriage that has only your name on the title belongs to you alone. It generally does not.
If you live in a community property state that also offers the "right of survivorship," then probate can be avoided in the event of a spouse's death. If the title to your home, for instance, has both your names on it, then the property automatically becomes yours at the death of your spouse. Probate is not needed.
If your state is not a community property state, then it is probably a "common-law state." In these states, if you buy a car during your marriage and have only your name on the title, that car is yours alone, and you can leave it to whomever you wish. It's important to note, however, that nearly every state has certain laws in place which prevent the complete disinheritance of a spouse. So if you decide to cut your spouse out of your will and leave all the money in your 401K to nieces and nephews, your spouse may have a right to claim some of that money in court (usually one-third to one-half, depending on how long you were married). Of course, your surviving spouse does not have to claim it if he/she wants to honor your wishes.
This does not apply to ex-spouses. Divorce tends to cut former spouses out of any right to inherit anything. The best advice, however, is to make a new will if you get divorced, so there can be no possible delay or question.
Usually, children have no automatic right to inherit anything from their parents. There are exceptions to this rule, as there is in Florida, where a child may have some rights.
If, however, a child is born and you die before putting that child in your will, most states assume that was not your intention, especially if the child's older siblings were included in the will. In such cases, the "left-out" child has legal rights to some of the estate.
There are some things wills cannot do
If you have set up your property as joint tenancy with another person, such as your spouse, you cannot leave that property to someone in your will. At your death, the property being held in joint tenancy automatically belongs to that person. This same rule applies to the procedure known as "tenancy by the entirety," and, in community property states, if you have what is called "community property with right of survivorship." Such property always goes automatically to the person(s) you have set up these agreements with.
You cannot leave any property to anyone in a will that has already been put into a living trust. The trust owns the property, and the beneficiaries are already named in that document.
You cannot specify who will get your life insurance policy in a will. Life insurance policies already have named beneficiaries that take precedence. If you want to change your beneficiary, you must do so on the policy.
If you have set up a POD (Payable-On-Death) on your checking and savings accounts, that person will become the owner of those accounts no matter what your will says.
The same is true for TODs (Transfer-On-Death) on stocks or securities.
Additionally, wills are not the place to name a beneficiary for retirement accounts or 401Ks. You were supposed to have set up the beneficiaries on those accounts when you opened them.
Do not use your will to leave instructions for your funeral or health care wishes. You can make a "living will" that explains these matters. A living will is a document that states what you want when it comes to artificial life support, the donation of organs, extraordinary life-preserving procedures, etc. Make sure your executor and your family have a copy of this and perhaps even your doctor to ensure that things will be done in the manner you want them to be done.
No will can help your survivors avoid of estate taxes. If you think your estate will be valued over the federal exemption limit (which changes every year) you should hire an attorney to set up an AB trust or some other method of tax avoidance. Remember that some individual states are now going after estate taxes or inheritance taxes, and they also have different exemption limits. An estate planning attorney is your best defense in escaping the death tax.
Here is a list of things you absolutely cannot do in a will:
- Leave money to pets. You can leave money to a person who you have named as caretaker for your pets.
- You cannot leave money to assist an illegal activity. ("To Bob, if he becomes a drug dealer.")
- You cannot leave money to a person or people only if they marry, or divorce, or change their religion. It is all right, though, to put certain limitations of a lesser degree, such as money to a nephew if he graduates from high school.
- Wills are not designed to provide long-term care for a disabled person. You can buy long-term care insurance or set up a special trust for these situations.
Everything you ever wanted to know about executors
An executor is the person you name in your will who will see to it that all your final wishes are carried out. This person also pays your outstanding debts using money from your estate, and takes care of the probate procedure providing valuation of artwork, for instance, to the court. If the executor does not feel capable of handling the entire job or does not have the time, he/she can hire an attorney to take care of some of it.
Many people name as their executors their oldest child or their spouse. An executor does not have to be an attorney or have a legal degree. If your estate is complicated or you think there might be problems, you should leave enough money in your estate to pay for an attorney.
It would be helpful and more practical, if possible, to pick someone to serve as executor who lives in the same state or community as you. Oftentimes, people will choose the main beneficiary in their will to serve as executor. Don't forget to name an alternate executor in case your original choice no longer wishes to serve or dies before you.
If your estate is simple, there are no disputes and everything has been taken care of before your death, your executor will probably never have to enter the probate courtroom. He or she will be able to take care of everything by mail.
The probate court clerks can sometimes answer questions that the executor might have. Tax accountants can be helpful in certain circumstances, and paralegals who have experience with probate can provide assistance.
What if I choose to have a trust drawn up?
Even if you do decide to go with a trust, you may have a will made too. Then, whatever you forget to add to the trust will still be taken care of. This is called a "pour-over will." It "pours over" any lingering property into the trust, leaving nothing to chance. Another method is to simply state in your will that you want "any property not listed in the trust to go to _______." We also suggest going to www.legalzoom.com
for assistance in this process.
So, get started!
If you have any personal possessions that you want passed on, a will or trust is essential. Take time to consider who you want to be involved. This is a part of the legacy you will leave behind, and your time now can greatly help your family and friends later.