Tag: beneficiary

Basics of Estate Planning: Part II, The Will

The Last Will and Testament, more commonly known as just “The Will,” is at the heart of the Estate Planning process (see prior segment of this series “The Basics of Estate Planning: Part I, Everyone Needs It”). The Will is the first document people think of, and typically the first document they complete as part of the larger task of Estate Planning.

But first, my disclaimer: I am NOT an attorney, but I have been exposed to all of the different pieces of the Estate Planning Process through my career as a Banker, and so I have a good understanding of the purpose of each, and have also seen where some pitfalls can occur. In addition, through my research, and the completion of my own Personal Estate Planning documents, I have learned a lot about the importance and significance of each, and am able to offer explanations and recommendations for anyone who would like to tackle this necessary task on their own.

Your Will is a document that will direct how your property and assets will be distributed upon your death. If you have minor children, your Will can also dictate your desire for guardianship of their care, and their finances. Experts say as young as age 18 is the time to start thinking about preparing a Will, especially if you own significant assets or have children. A Will can easily be completed without requiring an attorney, but more complicated situations will require legal advice. Keep in mind that an attorney will not–and should not–tell you what to do. You tell them what you want to accomplish and they will help you prepare the paperwork to make sure that happens. Some of the situations in which you should consider professional legal help include:

  • You fear a lawsuit, or think your wishes might be contested
  • You own multiple properties or multiple businesses, especially with complicated ownership
  • You have a lot of assets, or high dollar assets (over 1 million)
  • You have out-of-state, or international assets
  • You want to protect your assets from estate taxes, creditors, or potential medical expenses
  • You have complicated child care concerns
  • You live in a Common Law State and are unsure how these laws apply to you

Each state has different requirements in terms of what will be considered a legal Will and also may handle situations differently regarding after-death processes. Do your research for state-specific requirements and always consult a state-sponsored website for your particular state. To find these, go to http://www.findlaw.com, click “state laws,” choose your state, and click “Estate Planning Laws.” Your state’s site may even have some sample documents available for you to review.

In most cases, the legal requirements for a Will are very basic.

  • It should be typed
  • You must be at least 18 years old and of sound mind
  • You must name an Executor, and at least one beneficiary
  • The document must state that it’s your Will
  • You must sign and date your will and have at least two individuals sign as witnesses

Most states do not require that your Will be notarized, but as always, check your particular state for legal requirements. Having your signature notarized is usually a good idea, even if it’s not required. Your bank will likely have a notary available for you.

A Will can be very basic, or very complicated, but all cover the same components. Here are the basic sections of the Will and what each element consists of:

  • Personal information/sound mind/replaces prior wills-Includes your legal name, address, marital status, and listing of children, or grandchildren; a statement that you are of sound mind, and that the current document replaces any prior versions of a Will. Example: I, John Smith, of 100 Springs Lane, Anytown, Sonoma County, CA do declare this to be my Last Will and Testament and replaces any prior versions. I am of sound mind, and I am married to Joanne Smith, and have one child, Joseph Smith, both of whom reside with me.
  • Naming of Executor; In most cases, an executor will be named. This is sometimes referred to as an Administrator, or a Personal Representative. Naming an executor may not be required in your state, but it is always a good idea. This is the person who will carry out your wishes, and manage the disbursement of your assets upon your death. Naming an executor will make the probate process easier, and even if your Will does not need to be probated (because you have taken other steps to ensure your property passes to someone else upon your death), a Court appointment as Executor will come in handy for those trying to manage your affairs. Something as simple as a cable bill that is in your name alone will become a nightmare when your family members attempt to obtain information, or even close the account, following your death, if they do not have an official court document. See Future Installments of this Estate Planning series: Avoiding Probate and Guidelines for Your Executor. Example: I name Susan Smith, of 123 Vineyard Lane, Anytown, CA, as my Executor.
  • Distribution of Assets/Residuary clause-This is a listing of your assets, and your beneficiaries; when determining amounts for assets that are to be split among different beneficiaries, use percentages instead of dollars; List beneficiaries, and alternates, and a residuary clause that includes the person or persons who will receive anything that is not specifically listed in the Will. In the case of numerous assets, a “Property List,” might be helpful; Example: I leave all of my assets including my home at 100 Springs Lane, my bank accounts, and my personal possessions, to my wife, Joanne Smith (40%), and my son, Joseph Smith (60%). If either of them predeceases me, the other shall inherit all assets. My residuary beneficiary will be Joanne Smith.
  • Handling of children, if applicable; Example: Upon my death, and in the event Joseph is a minor, I direct that his personal and financial care, shall be in the hands of his mother, Joanne Smith.
  • Survivorship clause: to ensure your Will determines who inherits your assets, and not the beneficiary’s will; in other words, if one of your beneficiaries dies immediately after receiving proceeds from your Will, those assets would then transfer to that individual’s beneficaries, as opposed to another of your beneficiaries; typically this waiting period is 5 to 60 days. Example: Beneficiaries must survive me by 30 days in order to inherit.
  • Signatures/Witnesses/Notary; You will sign and date, have 2 witnesses sign and date, and have all signatures notarized.

The example phrases in the above, could be put together in a single document to complete a very basic Will. Most Wills are a little more lengthy, as they may involve multiple assets and beneficiaries, but in some instances could be as simple as one page. In addition to the basic components, your Will may also express your wishes for Funeral Arrangements and Memorial Services. This kind of information is also sometimes outlined in a separate document (For example “Final Arrangements”).

Most times, upon your death, your Will will need to be probated. This is a legal process where the Personal Representative is officially appointed by a local court, as the representative of your estate. This is important because most places, like banks, will not recognize the Will as a legal document to grant the PR the authority to manage the deceased’s finances. The person named as executor in the Will would complete an application (generally referred to as a “Petition for Probate”) and will provide the application along with an original copy of the Will and the death certificate to the Probate Court in their state. The court will “prove” the Will–verify it’s a legal Will– and then will appoint the Personal Representative. The Court will also appoint guardianship if there are minor children. The PR will receive a legal document that gives them the ability to act on your behalf for any property that has not otherwise been designated (for example with a Trust or joint ownership). The court appointment document is also important for managing any affairs that don’t involve assets, like accounts for cell phones, or utilities. The PR appointment does not grant anyone legal ownership but gives the appointee the ability to act on behalf of your Estate. 

In the absence of a Will (Known as dying “intestate,”), the Court will likely attempt to appoint the nearest living relative as PR, a spouse being the first option. The court won’t go looking for individuals, however, so in the absence of other applicants, the court will likely appoint any applicant with a close relationship to the deceased. As this may not have been the person you would have chosen, it’s best to make this clear by completing your Will as soon as possible. In the absence of a Will, the court will also determine how your assets are distributed, using a predetermined hierarchy.

You may have heard references to a Will being contested. This is a rare occurrence but could happen if the legal requirements of preparing a Will are not met. Other reasons a Will is vulnerable to being contested include the author being pressured to put certain things into their Will, lacking a sound mind, or possibly something fraudulent, for example a forged signature. Proof would need to be provided to substantiate any of these claims.

As with all of your Estate Planning documents, the Will should be reviewed regularly, and updates made as your situation changes. Every couple of years is probably sufficient unless you have a major life change like marriage, divorce, or new children. In addition, it’s a good idea to let someone know where your Will is located, or even to provide a copy to anyone you think should have it, in particular, your Executor.

Your Will is a very important piece of your Estate Planning Process, and you are never too young to start working on this document. While it’s not always a pleasant topic to tackle, having your instructions and wishes written in a formal, legal document, will make things much easier on the loved ones that you leave behind.

Basics of Estate Planning: Part I, Everyone Needs It

In my many years as a Banker, I’ve seen bad situations of individuals who did not do any Estate Planning. They leave behind accounts that no one can access, and a family that often does not know what they have, where it is, or how to go about distributing it. Worst of all, they don’t know what their loved one’s wishes were. Often people tell me they don’t really own anything significant, so they don’t need to plan for what will happen upon their death. “I don’t own a house or have any children, so there’s nothing to inherit and no one to leave it to.”

I am not an attorney, and therefore cannot offer legal advice. For complicated situations, or specific legal questions, you should always seek legal counsel. This is just some guidance as to what I’ve learned over the years. I’ve seen what can happen when someone dies without having done any planning, and I can see how things move much more smoothly when an appropriate plan has been implemented. This is part I of a series, so let’s begin by talking about why it’s important for everyone to think about Estate Planning.

Estate Planning is a fancy phrase that simply means ensuring that things will happen as you want them to when you die, or if you become incapacitated. This involves passing on property, determining wishes regarding children or others dependent on you, stating burial and memorial service wishes, and making wishes known regarding what happens if you can’t make decisions for yourself. Putting your wishes down on paper also makes it much easier for the people you leave behind to get through what is likely to be a difficult period. Mourning is hard enough without also trying to navigate the complicated world of distributing or transferring assets, especially without an understanding of what the deceased would have wanted. So do you need to do some Estate Planning?

You Need to do Some Estate Planning If:

  • You own any property including real estate, a business, vehicles, cash, investments, life insurance, collectibles, antiques, furniture, jewelry, family heirlooms, books, tools, even clothing, dishes, photographs, or equipment
  • You have children, especially minor children (or others who rely on you financially or physically)
  • You have wishes about what happens if you are incapacitated, or wishes about memorial services and/or burial when you die
  • You have family rifts that might cause arguments over distribution of assets
  • You are in a second relationship, especially with a blended family
  • You want to make things easier for your loved ones upon your passing

Basically: Everyone. Many of us can manage the process of Estate Planning on our own and hiring an attorney to do it for you can be expensive.  There are a lot of tools available online for both advice, and sample forms. Some online tools will assist with form completion for a small fee. If you do attempt to do your planning on your own, be sure to review your state’s guidelines for what makes a document legal. For example, in Massachusetts, a Living Will (see below for definition) is not accepted as a legal document and your doctor will not use it to direct your health care decisions. However, it will still give your family guidance in these situations. Also, some documents will need to be notarized to be considered legal, and others will not. You can check this information by searching for a topic and then choosing a state-sponsored site for the legal answers that apply to you.

What are the possible pieces of Estate Planning? Here are some of the most common documents that are found as part of an Estate Plan. I will address each of these items separately in future segments of this Estate Planning series. Not all of these will apply to your situation.

  • Will
  • Account Titling provisions (UTMA, POD, beneficiaries, joint owners)
  • Living Trust
  • Health Care Directives
  • Power of Attorney
  • Funeral/Memorial/Service Planning
  • Organ Donation instructions

Some Estates are obviously more complicated and will certainly require professional advice from an attorney who practices Family Law or Estate Law, particularly if any of these scenarios apply to you:

  • You live in a Common Law State and are unsure how these laws apply to you
  • You fear a lawsuit, or think your wishes might be contested
  • You own multiple properties or multiple businesses, especially with complicated ownership
  • You have a lot of assets, or high dollar assets
  • You have out-of-state, or out-of-country assets
  • You want to protect your assets from estate taxes, creditors, or potential medical expenses
  • You have complicated child care concerns

So what happens if you die with no Estate Planning put into place? If you die and have made no provisions for what will happen when you die, you have basically given up the right to decide who oversees your estate, and what happens with it. Consequences will be out of your control, and possibly out of the control of your loved ones. Your next of kin will need to complete an application to be appointed as the Personal Representative of your estate, which will allow them to handle assets in your estate.  This process is known as probate, and can take months. During this time, assets without clear ownership will not be able to be accessed, and bills may go unpaid. Even after a personal representative is appointed, without a Will the state still gets to make the decisions as to how your assets are distributed, in most cases going to your nearest relative, which might not be what you would have wanted. Dying without a Will is called “Intestate,” and scenarios differ from state to state but could include family members ending up with nothing, having serious tax consequences, or even being kicked out of their homes.

Estate Planning is not something you do once and then forget about. You can–and should–review your Estate planning every couple of years to see if changes are needed based on your current situation. You can update any of the documents in your Estate Planning as often as you need to.

Here are some common terms and definitions that you’ll hear in connection with Estate Planning.

Personal Representative– The court appointed administrator of a deceased person’s estate, possibly named in a Will

Probate– A legal process by which the court determines how to distribute a deceased person’s assets; this can happen with, or without a Will

Will (or Last Will and Testament)– A legal document where an individual outlines their final wishes regarding their property and dependents after their death

Living Trust– A formal written document that allows property in the name of the Trust, to pass to beneficiaries without probate

Beneficiary-A person who receives money or benefits, usually following the death of the original owner

Contingent Beneficiary-A second level beneficiary who only obtains benefits if the primary beneficiary dies before, or at the same time, as the original owner

Health Care Directives-Written instructions put into place that outline a person’s wishes regarding what they would, and would not, like for medical intervention in the event that they are unable to make these decisions for themselves; a health care directive might also name an individual to make these decisions for them

Living Will-A document describing what kinds of treatments an individual would, and would not, like to have in the event they are unable to make these decisions for themselves

Health Care Agent-also known as a Health Care Proxy-is a person appointed by an individual to make health care decisions for them should they become incapacitated

Stay Tuned for Estate Planning, Part II, The Will.