Did you know that 68% of Americans don’t have a will?
With the coronavirus pandemic still raging across the country, more and more Americans are thinking about what will happen after they’re gone. It’s not the most pleasant dinner table conversation you’ll ever have, but the cost of not having it is too high for most people to afford—there are a lot of hidden costs in closing an estate, and the value of the average person’s estate isn’t high enough to justify the sticker price.
So, it’s time to talk about wills and estates. Here’s a basic walkthrough for every newbie estate planner to keep in their back pocket.
The Basics of Wills, Trusts, and Estates
A will is a legal document setting forth your wishes for the distribution of your property and the care of any minor children. It’s the most common estate planning document out there. However, certain types of property cannot be included in a will, such as:
- Jointly owned property
- Life insurance
- Retirement plan proceeds
- Proceeds from a payable-on-death bank account
This is where a trust comes in. A trust is a fiduciary arrangement allowing a trustee (a third party) to hold assets on behalf of the beneficiary. These are often used as a way to sidestep probate for assets that cannot be included in a will.
A will and a trust can both be used to govern your estate, which is all the property a person leaves behind when they pass away. There’s your gross estate (the total fair market value of all assets you owned at the time of death) and the taxable estate, which accounts for all of your taxes and debts owed.
Different Kinds of Wills
What are the different types of wills? In short: way more than you might think.
The most basic form of a will is a handwritten will, or holographic will. However, most people choose between one of four types of wills:
- Testamentary trust
A simple will is what most people associate with the word “will”. It covers the basics, namely who will receive your assets and who will care for minor children. A testamentary trust will places some of your assets in a trust for your beneficiaries and names a trustee to manage it on their behalf, thus bringing together a trust and a will. A joint will is shared between spouses, usually in favor of the other spouse to inherit everything.
A living will has nothing to do with distributing your assets after you die. Instead, it outlines your wishes regarding medical care should you become incapacitated.
Wills and Estate Planning: The Importance of Choosing an Estate Attorney
The first step to estate planning is asking a basic question: who can write a will? Technically, anyone. You could write your own will in crayon if you were so inclined, but you shouldn’t.
Most people think that their estate is simple. Here’s a hint: if you have debt, multiple children or interested beneficiaries, taxes that must be paid after you die, or any reason why your will might be contested, you do not have a simple estate. An estate attorney can help you sidestep the expensive probate process for maximum benefit to your beneficiaries.
Need More Advice on Wills and Estates?
Wills and estates aren’t the most pleasant topic you’ll bring up at dinner, but they are essential to ensuring that the people you care about are taken care of when you’re gone.
Need more advice on estate planning? Make sure to check out our blog for more great tips.