1. What happens if you pass away without a will?If you pass away without a will, you and your loved ones will not be in charge of how your assets get distributed. Dying intestate (i.e., without a will) means the state courts will decide who gets your belongings and who will become guardians of your children. If you have a family member you are helping to support or an unmarried partner, you may not be able to pass your assets on to them. The laws in each state are different, but for the most part, your assets will be passed on to your closest blood relative, regardless of who you would have chosen. Having a will in place makes sure that you are in control of your assets and can distribute them as you see fit. So if you want to donate to a school or charity, you can – without the state getting in the way.
2. Some assets are distributed regardless of what your will saysThis isn’t quite as scary as it sounds, but you do need to be aware that some assets are passed on outside of the will, regardless of what you put in writing. Some examples include:
- 401(k) plans
- Individual retirement accounts (IRAs)
- Life insurance policies
3. You can set up a will for free, but beware of the limitationsIf you search online, there are many free or low-cost templates you can download to make a will. But be aware that these forms will not necessarily comply with all the specifics of your state laws. My wife and I went with a free option to make a will the first time we traveled for an extended period of time without our kids. We wanted to make sure we had something in place just in case of an emergency. However, if your life and assets are more complex, it may be wise to enlist the help of an estate planning attorney in your area who is familiar with the local laws. They can also help you work through various scenarios you may not have thought of, such as how best to transfer title to a property or what to do if you’re in business with a partner.
4. There are other documents you should consider besides just a will to protect you and your familyMaking a will is just one part of the estate planning process. There are often other legal documents you will want to have on hand and helpful instructions for your loved ones, especially if you are the one that mostly takes care of the finances. One document you may want to consider is a living will. This is an advance healthcare directive that outlines your wishes should you be unable to make those decisions. For example, if you are on life support, it would be written down as a legal directive instead of forcing your spouse or loved one to make the difficult choice to end life-saving measures. Another document to consider is the power of attorney. This grants a person or persons the ability to make medical, financial, or other decisions for you if you are incapacitated. Finally, while not a legal document, having a folder with information on financial accounts, assets, and other records could be a great help to your loved ones if you unexpectedly pass away or become incapacitated. For example, I keep all of our rental property accounting documents stored and organized so that my wife can access them should anything happen. The last thing I want is for her to be worried about rent checks or maintenance calls if I am no longer here. Having easy-to-access information can ease the burden of an already stressful time on your family if they know how to access bank accounts, insurance contacts, and other things that are normally taken for granted.
5. Name guardians for your childrenIf you are a parent, you will want to make sure you use your will to name guardians for your children. This can be a tough decision and probably requires a conversation with the would-be guardians. However, it is definitely in your best interest to have this written down and not left up to the state courts to decide.
6. Consider setting up a trustIf you want to pass money down to your kids but don’t want them to receive a massive windfall early, you can create a trust to hold one or more of your assets. You can then make your child the beneficiary of the trust. This trust will hold the assets on behalf of its beneficiaries and is its own legal entity. When you set up the trust, you can plan how and when the assets are distributed. For example, the beneficiary could receive a certain percentage when they reach a certain age or a set amount each year.
7. If you own a business, make sure you include it in your estate planIf you are a business owner, your business itself could be one of your most valuable assets (and one of the hardest to pass down). For a small business owner, think about how much your business relies on you personally. If you were to pass away, how would the company keep running? Would you sell all of the business assets and close up shop? Or appoint a family member or colleague to take over? These are all questions that you should consider. Even if you have a side hustle making an extra $1000 a month, you should think about how or even if that income stream could continue after you pass on. For example, I have a few side hustles. One of them is my personal finance blog, which relies almost entirely on me to keep running. As an income-producing asset, it could be sold for a profit. To that end, I have given my wife basic instructions on who to contact to help her maintain and sell the blog should I pass away or become incapacitated.
8. Name an executor of your willThe executor of your will is in charge of carrying out your final wishes as stated in the will. They will distribute your assets to your beneficiaries, pay your debts, and generally settle your accounts after you pass away. When making the will, be sure to name an executor and possibly even a backup. This should be someone organized, reliable, and trustworthy as the job has a lot of responsibilities. Often the executor will be a spouse, adult child, or trusted friend. This is a big responsibility, so as with naming a guardian, be sure to have a conversation with them to make sure they are willing to take on the job. If you don’t want this task to fall to a family member while grieving, you can also choose an accountant or attorney as your executor and have their fee come directly from your estate.
9. Make sure to follow the rules to make it legalState rules vary, but for the most part, there are a few key things you must do to make your will a legal document. Just writing it down on a piece of paper and signing your name is often not enough. Once you write out your will, most states require that you sign it in your own handwriting in front of at least two witnesses, who will also need to sign your will. These witnesses cannot be your executor, guardians, or any beneficiaries in the will. Some ideas for your witnesses could be friends, neighbors, or co-workers. In addition, you may need to have your will notarized before it is legally valid. Make sure to check the rules in your state.
10. Don’t forget to update your will periodicallyOnce you’ve finally made a will, you probably want to put it in a drawer and forget about it forever, but don’t! Life happens, and significant changes could mean that you need to re-evaluate your will. You should consider updating your will at least every five years, or if you have a big life change such as:
- having children/grandchildren
- getting married or divorced
- moving states (because the laws surrounding wills vary state to state)
- buying a house or other large asset
- if one of your beneficiaries, guardians, or executors passes away
Making a Will Is ImportantIt can be easy to put off making a will, thinking you will get around to it soon enough. But writing down your will is essential because you never know what tomorrow holds. Having a will in place is one of the best things you can do for your loved ones after you’re gone. It allows them time to grieve your loss, knowing that they will not have to deal with the stress of fighting in court over how your assets will be distributed. If you keep the fundamentals discussed above in mind, you can have peace of mind knowing you are taking care of your family in their time of need.
This post originally appeared on Your Money Geek.