Wills: The Basics

by Nora Dunn on 22 January 2008 9 comments
Photo: MegElizabeth

As indicated in a previous article, planning for the future (even if the future means you're dead) is a necessary evil. Here are some of the basics of a will and what you need to know.

BASIC TERMINOLOGY

Will

This is a legal document which outlines how your assets and belongings are to be distributed when you die.

Executor

Your executor (also known as "administrator") is the person you designate in your will to carry out your wishes.

Since they have to follow your will to the letter, it is best to meet with your chosen executor, gain their approval for such a responsibility (it's a big one), and then describe your wishes to them as outlined in the will. They should also ideally know where to find the will and other key documents if and when they need to.

Beneficiary

Beneficiaries are the people who receive your assets when you die. You designate them as you see fit in your will, and you can have as many beneficiaries as you wish. Beneficiaries can also include companies, charities, and other organizations. (If you designate an organization or charity as your beneficiary, it is best to consult with them first to determine how specifically to do so).

Intestate

If you die without a will, you are considered to be intestate. This is when the government steps in, and over a tiresome period will attempt to contact anybody who might be a family member with a right to receive any of your assets. They first need to find the most appropriate executor, since nobody will be allowed to touch anything you owned until one is appointed. All accounts without designated beneficiaries (and even some that are) will be frozen and assets locked up.

If there are competing interests for who should be the executor, then intestate succession can become ugly, costly, and chaotic.

And if somebody dies intestate, even joint accounts can be frozen (not always, but in some cases), so spouses who think their estate situations are simple and not in need of wills can sometimes be in for a nasty surprise.

BASIC BENEFITS

Guardian for Children

In your will, you designate a guardian for your minor children. You can also specify certain elements of how they are to be raised, and arrange how they will be financially cared for.

If no guardian is selected, your kids don't get to pick, and sometimes the most logical guardian (for example a close friend who has been involved with the family since the beginning and would love to care for the kids) won't be respected - it goes by the book (worse case scenario: think "wicked Aunt who hates kids and never went to a family picnic if you paid her").

Income Tax Savings

Depending on where you live, there is usually a tax-friendly provision for the rollover of assets between spouses on death if it is properly specified in the will. Otherwise, there is a "deemed disposition" of assets often resulting in a tax bite before the spouse gains access to these funds. (General financial prudence dictates that you put off paying taxes until the last possible minute, in order to achieve greater overall gains using compound growth).

Trusts for Children

If you die and your kids are the age of majority, they will have full access to the assets you bequest to them. Not to challenge your parenting skills in raising a responsible child, but really - what 18 year old (or 21 year old for that matter) is going to responsibly accept a financial windfall? Heck - many seasoned adults can't handle financial windfalls; young adults won't fare any better. Your hard-earned estate that you hoped would provide financial security for your kids could end up being spent in record time with very little to show for it.

So in your will, consider setting up a trust. There are a few types of trusts (which go beyond the scope of this article), but basically you can set the terms as you wish. You can specify when and how your kids receive the money, and even how it is to be used or invested. Beware of setting too many restrictions: resentment can become a factor if the kids feel they have been unrightfully challenged, but most will eventually respect a decision to hold off divesting the funds until a later age.

Family Law Protection

Once again we trust our kids to make all the right choices in life, including their choice of spouse. However life happens, and sometimes marriages break down. If your hard-earned estate is left to your child and their partner (be they a husband or wife, or just a common-law partner), half of it could well disappear along with that marriage when it breaks down.

In your will, you can insert clauses and terms to prevent this from happening.

Common Disaster Clause

The best way to demonstrate the effectiveness of a Common Disaster Clause is by example:

John & Jane are married, with no children. They are both in a serious car accident, hospitalized in critical care. John passes away first, but Jane hangs on. However two weeks later, Jane too dies.

Without a common disaster clause, John's assets would go to Jane, the surviving spouse. When Jane dies, her entire estate (which includes everything John brought to the marriage) would go to her side of the family (or whoever her contingent beneficiaries are if she had a will). John's entire family would be denied any inheritance (including heirlooms or other prized family items - it's not all about money).

A common disaster clause diverts this problem by stating that if both spouses die within a certain amount of time (eg: a 30-day period) as a result of a common disaster, then their estates are split in half and distributed to their respective families accordingly.

Liability Clause

This is inserted to protect the executor from being sued, for example in the case of an investment loss. This is particularly important if they are managing trust accounts.

Expert Clause

This allows your executor to retain the services of an accountant or lawyer with regards to processing the estate or receiving estate-specific advice, and the estate can pay for it. Otherwise, the fees could come directly out of the executor's pocket. And although they may be a great brother or good friend, nobody appreciates a legal bill - much less an unexpected one!

As I said earlier, it’s not all about money and cash grabs when you plan your will and estate. You are looking out for the best interests of yourself, your loved ones, and their loved ones too. Nobody likes to plan for the future in this respect, but once it's done it can be put to bed, and everybody can rest easily knowing that the future is taken care of.

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Guest's picture
Marie-France

This was a great post, and for me, really timely. I have been trying to convince my parent's to write their wills for a time now but they aren't getting off their butts to do it. My parents own a partnership business, and also my dad isn't a super healthy guy. Anyways, how should I go about convincing them to get it done?

Guest's picture

but they do. Things can get complicated after you die..and people..relatives..don't act like they normally would! If you have no kids, do you want your parents and/or your siblings to get part of your estate? If you have kids, you are NEGLIGENT, if you don't have a will that says exactly who you want to get your kids (get permission beforehand and work it all out beforehand).

Also, do you want those left behind, floundering and doing extra work because you didn't have your ducks in a row? The probate process is MUCH faster if you have a will..don't automatically assume everything will go to your spouse or your parents, if you are unmarried. Get a will.

Wills can be cheap! There are many self help kits out there. You don't need to see a lawyer...go to Legal Zoom or "We the People" (google those two)...or if you are military (retired too), get it on post at the legal office for free. Some companies even have their own legal office and provide free services..just ask.

If your net worth is over $500,000, then you need a living trust. If you see a lawyer, it'll cost $500-$4k. If you do it on your own, thru a place like "We the People", it'll cost only $500..you'll have to fund it yourself, but they show you how to do it.

Good post and good reminder for the new year!

Thursday Bram's picture

It seems like everyone has their own business these days, even if it's just a small side line to their day job. What do people need to do to take care of their businesses in their wills?

And what about writers, artists, etc.? Do they need to formally hand off rights to their works at all?

Thanks!

Guest's picture
Guest

Don't make it harder on your heirs...

Nora Dunn's picture

@Marie-France:  Talking to parents about estate planning can be some of the hardest things to do, to be sure. I actually deal with it in another article I wrote here , if you are interested.

@Veteran...: Thank you for your support! And although I'm all for the frugal option, please beware of the do-it-yourself will kits...they can leave lots of loopholes that can cause problems later down the road. Buyer beware. 

@Thursday:  For business owners (especially those with partners), there is a whole other set of estate planning and business succession options which need to be examined. (This will actually be the topic of some future articles, so stay tuned)!  As for writers and artists, I hadn't actually given the rights to works any thought yet (bad Nora!), but it's a good idea. I'm not sure what the scoop is....anyone?

 

 

Guest's picture

Thanks for the info. My wife and I set a goal this year to get our will done. It is well over due. I am still deciding if we need to go to a lawyer or are those sites like legalzoom good enough for a simple will? Does anyone have any experience with these sites?

Mark P. Cussen's picture

Excellent article as usual. Having a will is an absolute necessity for anyone with assets or children, and a living will is necessary for everybody else. So how's life going for you up in the great beyond?

Mark P. Cussen, CFP, CMFC

Guest's picture
Lillian

My father wrote a letter(Holographic Will)to my mother, Jan. of 1968, stating that if anything happens to him, he would like her to make sure I got his belongings and to let me know it came from him. He had stated that he had moneys coming due to him and to see an attorney to take care of it. My father passed away that year in Nov. I was 6 years old at the time. My mother and father were divorced and my mother was remarried with children from her 2nd marriage at the time of my fathers death. In 1972-73 I found that letter, my mother was throwing it away with other papers that belonged to my father and his mother(my grandmother) Papers that could prove she had commited fraud. I was around the age of 10 when I found the papers. I didnt tell her that I had taken them out the trash(I have always heard, one mans trash is another mans treasure), and I am here to tell you that, thats the day, I found my treasure, but not knowing it untill years later. Then in 1999, for reasons(long story), my mother put the property that my father left and wanted me to have, in my half brothers name. I was so upset, I told my brother about the letter(will) that I had found years before, telling our mother that my father wanted me(his only child)to receive his property. My brother told me it was his land and he was going to sell it, that the letter I had didnt mean a thing. A family member told me I should talk to an attorney, and I did. That is when I found out that the letter is a Holographic Will and is legal in the states of Louisiana, where I live and in the state of Mississippi where the property is located. The attorney encouraged me to try and work it out with my mother and brother, out of the courts. Little to say, that it didnt work. I had to start a lawsuit, that was in 2003. During this time my mother and brother had stopped talking to me, and said they didnt want anything more to do with me because I was sueing them. Then in 2005 after Hurricane Katrina, I got in touch with my mother to tell her that she means more to me then a piece land. My brother asked me what do I want to do about the land, and I told him that I would like to start a family business on it, he said that was a good idea. I told them I would drop the lawsuit, if my name was put on the deed and we started a family storage business. My attorney got upset with me, telling me that I would regret dropping the lawsuit, at the time, I didnt believe him, I wanted my family back...Little to say, it is now 2009 and still no storage business. They have stood in my way, anyway possible. They just want to sell it, give me half. I dont want half, I have 3 daughters that I would like to leave the property to. My brother dosent have any children, and still lives home with our mother. I am not happy to say, that I had to get another attorney to find out where I stand at this point, but, I am hoping to have somewhat of a storage business started by this time next year...O.M.Goodness, sorry to have gone on and on...it feels good to think someone out here may be able to relate to what I have been dealing with for years now...

Nora Dunn's picture

Thank you so much for sharing your story, Lillian! I'm so sorry that you had to go through all that. Sadly, you are probably not alone...