Creating a will is one of the smartest steps you can take to protect your family and your finances. You can also save your family time, stress and money down the road by taking the time to clarify your wishes now in this one powerful document.
The following three questions will help you understand the importance of a will and what it can do for you.
What is a will?
A will is a legal document containing instructions to be carried out after your death. Your will names:
- People and organizations who will receive your property and other assets. These are known as "beneficiaries." You can leave all of your assets to one beneficiary such as your spouse, or divide your assets among more than one individual or organization by specific percentages. You can also designate gifts such as jewelry or other possessions to specific individuals.
- Someone to manage your estate and carry out your wishes. This is the executor. He or she will collect and manage your assets; pay your debts, expenses and taxes using estate funds; and distribute your assets to your beneficiaries according to the instructions in your will. Because being an executor is a time-consuming, important job, you should choose your executor carefully. You can choose a family member, close friend, or a professional who may receive compensation for being your executor.
- Someone to care for any young children you have. You will want to name guardians for any children younger than 18. And because children can't own property until they turn 18, your will may also name a guardian to manage the children's assets until they come of age. This guardian may or may not be the same person responsible for the children's personal care.
What does a will cover (and what doesn't it cover)?
Your will covers assets that are titled in your name at your death and for which there is no designated beneficiary.
Some assets not affected by your will include:
- Life insurance, retirement plans such as a 401(k) or IRA, bank accounts or any other asset for which there is already a named beneficiary. Note that if you designate a beneficiary for these accounts and name someone else to receive these assets in your will, the beneficiary designated on the account form supersedes whatever your will says.
- Assets owned with someone else ("joint tenant") that will automatically transfer to that person. This is known as "right of survivorship." Common assets that have right of survivorship include real estate, automobiles, bank accounts or certain securities and brokerage accounts that designate "transfer on death" or "pay on death."
- Community property with right of survivorship, which allows certain property to pass directly to your spouse or registered domestic partner. In some states you may need to designate assets as community property with right of survivorship. In other states, assets acquired during your marriage are automatically owned equally by both spouses, and your will would affect only your half of the community property.
- Living trusts, which are generally distributed according to the instructions in the trust regardless of the instructions in your will, without court oversight.
Even if your entire estate consists of assets in one of the categories above, you should still create a will. For example, if your spouse or other named beneficiaries die before you do, then the assets in question would be distributed according to your will. If you receive unexpected assets such as an inheritance, they would be subject to your will. And crucially, if you have minor children, you'll want to designate guardians to manage both their personal care and their financial assets.
What happens if I die without a will?
If you die without a will (also known as dying "intestate"), the laws of your state will decide how your assets are divided. Without a will, the legal process that determines how your assets will be distributed [known as "probate"] will most likely be longer. An extended probate period can be time-consuming and involve expensive legal fees, decreasing the amount of your assets that are ultimately distributed to your loved ones.
In many states if you don't have a will all of your assets will go to your spouse, if you have one. In some states your assets will be divided between your spouse, your children and/or descendants of any deceased children. If you don't have a spouse or children, your property will likely be distributed to any living family members. If you don't have living family members, your property will go to your state of legal residence.
Perhaps most important, if you have minor children and you and your spouse die without a will, the court system would name the children's personal-care and financial guardians.
Ready to learn more about the process of creating a will and how it will be executed after you pass away? Let's explore the life cycle of a will, from beginning to end.
