September 4, 2020
Wills aren’t really the most fun topic to read (or write!) about, but their importance in a financial journey cannot be overstated. A will is a document that explains your wishes about your responsibilities and financial assets to your loved ones after you pass away. You can get as specific as you want (i.e., you leave a certain family heirloom to a particular person) or keep it more general (i.e., you want your surviving spouse to get everything). If you don’t leave a will, there can be arbitrary rules and restrictions your family or loved ones could face, and it makes things confusing during a time of grief and adjustment.
Making a will doesn’t have to be complicated or time consuming. If your financial situation is not complicated, you don’t need a lawyer to help you draft a will.
If you don’t have a will, the law decides who will manage your estate and who will get it. It won’t be your decision or even your family’s decision. In addition to that, your family might get levied taxes and fees that could have been avoided with some planning.
In most instances, people can make a will on their own without the help of a lawyer or estate planner. If your financials and wishes are straightforward, you can find a template or use online software to draft a working will yourself.
Here’s how to get started:
There are a few assets that fall outside the scope of a will. You were most likely asked to designate a beneficiary when first setting up your 401(k) plan and individual retirement accounts. These accounts, as well as any life insurance policies, need designated beneficiaries that will receive the assets in those accounts no matter what your will says.
For other bank accounts such as checking and savings, there are forms called payable-on-death (POD) forms that you can list beneficiaries on.
If you own property, it can have its own rules around inheritance and estate planning. Laws can vary from state to state, so be sure to look up how to properly pass on your property, keeping in mind creditors and tax implications.
If no beneficiary is listed on those non-will items, the assets automatically go into probate. That’s the process by which all of your debt is paid off and then the remaining assets are distributed to heirs. The process can last several months to a year or more, depending where you are and what’s involved in handling your estate.
You should update a will after any major changes in your life. Review it often to make sure it reflects the current state of your finances, but also if you have changed your mind about the distribution of your assets.
In some states, getting married, living common-law or getting divorced or separated can cancel any previous wills you had made. Some other life events that may need a will update include:
Set an annual reminder in your calendar to update all of your important paperwork, including your will. Scheduling this around tax season can help, since the state of your assets is still fresh in your mind.
As you start the process of thinking about your estate and your will, also consider making an easy-to-find list of critical documents. In case of an emergency, it could be a huge help to your family to have everything on hand. Imagine your family having to deal with urgent paperwork and panic-searching for any documents they might need. Some documents to include would be:
It can seem overwhelming to get started with the process of making a will, but that might be due to the emotions surrounding the topic of death rather than the work involved itself. While we’re sure thinking about wills and guardianship is stressful, it is simply part of good financial planning. It might even be a source of relief after you’re done with the process to know that you’ve done your best to set your loved ones up for success in the event you are no longer there with them.