Have you ever wondered what’s going to happen to all your money and belongings after you die? Estate planning is rarely discussed in social settings, but it shouldn’t be among the taboo subjects. Writing a will is not out of the ordinary. You must have heard of some unusual desires of wealthy people such as Leona Helmsley who left $12 million to her Maltese dog named (suggestively) “Trouble”. Or comedian Jack Benny who paid a florist in advance to send flowers to her wife for as long as she shall live after his death. Planning is always good, considering that as we age we might suffer from memory loss or mental illnesses that may leave us exposed and vulnerable. Estate planning is easy and a will can be revoked and updated as one pleases.
How does estate planning work?
We might not have a huge fortune when we get our first job, but after we get married and our family starts to grow, our income also increases. As we feel more secure financially, we start exploring the various types of home loans and the idea of buying rather than renting starts to appeal to us. After we secure our primary residence, some of us test the waters of real estate investing.
As we add more and more properties to our portfolio, we may start investing in bonds and other securities to build a retirement fund, as well as multiple streams of income. Our estate keeps growing by leaps and bounds. According to the 2016 Federal Reserve SCF data, the median wealth of those between 30 and 34 years of age was about $30,000 (half of them had estates of $30,000 or less) while their average wealth was a little less than $95,000. Obviously, as people age, they start to grow equity in their homes and even pay off their mortgage, so the average net worth of elderly people past 70-years-old is over $1 million.
The more you own, the more concerned you should be about how your estate is going to be managed after your death. Don’t let the kids figure things out later! Fights over inheritance rights never end well. Don’t postpone estate planning.
If you have debts, the person administering your estate will make sure they get paid. However, be aware of the fact that your children may inherit mortgages on properties you have purchased but haven’t paid off. Some debts are forgiven, but some are passed along especially secured debts. Ideally, though, you may want to enter retirement debt-free.
If children don’t inherit their parents’ debts, they certainly do “inherit” all the money they have wasted instead of saving. It’s that “invisible” part of an estate that could have been there but it isn’t. Parents could leave larger estates to their children if only they controlled their spending better!
What is a will?
Wills are extremely powerful papers and the foundation of estate planning. The person who writes a will is known as the testator. A will is a document that specifies who is going to inherit the testator’s estate and what percentage of it. Nevertheless, some documents can override a will. For example, a prenuptial agreement is legally binding as well, and where are discordances, the prenup will prevail. Then the testator may have entered in various contracts during his life either for asset management or life insurance. These contracts may already specify who is the beneficiary of the funds.
In the US, the average retired adult leaves behind a net wealth of about $300,000, regardless of the age at death. By that age, even though they know what is a will and why it is important, very few leave one behind.
Are there more types of wills?
Yes, there are, but the basic guidelines are the same. The four types of wills are:
- Living wills
- Joint wills
- Testamentary trust wills
- Simple wills
The first one, the living will, is the only document that is valid before the writer’s death. It stipulates how you (the writer) shall be treated during the sunset of life – what medical treatments you agree to receive if you become unable to talk or decide for yourself, where would you like to be hospitalized, and so on. You have to designate a healthcare agent as well. It may also include specifications with regard to organ donations, life-support, and pain medication. You may even tell your doctor about your preferences regarding intubation and resuscitation. Do not resuscitate and do not intubate orders can be included in your medical records as well. So this type of will has nothing to do with your money and physical possessions. It’s all about your quality of life.
Joint wills are created by two testators who leave the property to each other. The surviving spouse will inherit everything and will be responsible for his/her estate planning.
Testamentary trust wills must go through probate first, so the trust will be created during that process. This is a way to leave money to your children, especially if they are minors or if they have trouble managing their own money, have gambling or drug addictions, a mental illness, or a disability. In this way, the children don’t end up with a lump sum that could be wasted foolishly.
Simple wills are exactly what the name implies: documents written to pass on a small uncomplicated estate. However, it is best to have it printed, not handwritten and must be signed by at least to witnesses who don’t inherit anything.
How to write a will?
You don’t want to make mistakes when writing such an important document, do you? Owning very diverse assets calls for the help of an attorney or estate planning lawyer. You don’t want to leave out anything and you don’t want to create confusions either. How much does it cost? A simple lawyer-drafted will costs about $300 and is usually a flat fee. For more elaborate ones, lawyers may charge up to $1,000.
Don’t have the money right now? Don’t worry! Anyone can write a will! What makes these documents so powerful? The details they contain. The more information you provide regarding all your assets, the better.
Start with a clear title: “Last Will and Testament”. Then include all your personal identification numbers such as your SSN and ID. Then choose at least two executors.
Don’t forget naming your heirs.
A crucial part of the will writing process is naming your heirs. There are heirs of the first and second degree, but make sure you build your family tree and identify the degree of kinship between you and those you want to include in your will. While in Europe there are laws that clearly outline the way an estate is dealt with after death, known as “forced heirship”, in the US things are less complicated. You can leave your estate to whoever you choose if you are not married, like the Portuguese businessman Luis Carlos de Noronha Cabral de Camara who chose 70 beneficiaries at random out of a phone book. Otherwise, you can name random beneficiaries for only half of your estate, if you live in a community property state.
If you write your will before your kids reach the age of majority (18 in most states, except Alabama and Nebraska (19), and Mississippi and Puerto Rico (21)), you have to specify a guardian or legal tutor after a thorough discussion with the person you have in mind. If you don’t, the court will appoint one anyway.
What assets should be included in a will?
Now you probably wonder what assets should be included in the will. Besides real estate, list your bank accounts (payable-on-death (POD) accounts preferably), stocks, bonds, pieces of art, luxury items, cars, boats, as well as intellectual property, patents, royalties, and copyrights. This asset inventory spreadsheet from Charles Schwab might help you – https://www.schwab.com/public/file/p-1016910/Asset_Inventory_Worksheet.pdf. Remember that you can skip assets with a designated beneficiary or jointly-owned ones.
The last step – putting the date and signature on the will. You have to sign the will, and in some states, this must be done in the presence of a notary. For the will to be considered valid, at least two witnesses must sign it. These persons must be legal adults (18 or older) and not be among the beneficiaries at all costs. Don’t respect this provision, and the whole document is null and void. It may surprise you, but if a will is witnessed by a beneficiary, his/her inheritance is canceled. Notaries and lawyers are accepted witnesses, too, but a notary signature is required only in Louisiana.
Be aware that wills in video formats are not valid. You may decide to record yourself to make the will more personal and authoritative, but the law does not recognize movie clips as valid wills. Only the written ones are taken into consideration in probate court. Handwritten wills are valid if they are signed by at least two witnesses and dated. Also, the writing must belong to the testator. So, a form or a draft filled in might be rejected in some states.
Can pets inherit real estate?
The rich and famous don’t find anything wrong with leaving their pets a fortune. Another example is the fashion designer Karl Lagerfeld who wrote his cat – a Burmese cat named “Choupette” – into his will. However, the richest pet in the world was a British cat named Blackie. It inherited a 13-million-dollar estate from the antique dealer Ben Rea in 1988, according to Guinness World Records. Of course, pets cannot be heirs, but when celebrities display such generosity, they also get a lot of media exposure and keep the ink (or pixels) flowing. What exactly happens? They set up a trust for their pets or find a caretaker and that person inherits enough to provide the pet the lifestyle it’s been accustomed to. This is such a great way to rehome a pet, isn’t it?
What happens to my house if I die without a will?
When a person dies without a will, that means it dies intestate. For these situations, each state has its own intestacy laws. In the absence of proper estate planning, your property will most likely be handled by a probate attorney and the heirs will be determined in the probate court. If you die unmarried and with no children, your house will be divided between your siblings, or, if no siblings, will be left to your parents.
If you die while married, your spouse can inherit everything if you have children. Otherwise, she is entitled to half of your estate. If you are cohabiting before marriage or you are simply in a civil partnership, division of the property is far more complex and is to be decided in court. So, if you die without a will, your estate could be inherited by people you detest. The best way to avoid this is to write a will. All the names that don’t appear in it are automatically excluded and will inherit nothing. Keep in mind, though, that you can’t disinherit minor children!
If you had never thought about the importance of making a will before, now that you know what a will is, we hope you’re really taking this document seriously. It doesn’t cost you anything unless you choose to go to a notary (where the average fee is $15 per notarized document – as much as a pizza) or attorney. Do it for your peace of mind! And do it in order for your spouse and children to avoid high legal fees and pointless arguments over the fruits of your work.