Dave’s Corner

What Is a Will, and When Should You Create One?

Most people have a general understanding of a “Last Will and Testament” from books, movies, or television. We have all seen the dramatic scene: a wealthy person passes away, the family gathers in an attorney’s office, and everyone waits anxiously to hear who receives what.

Entertaining? Yes. Accurate? Not exactly.

One misconception these scenes create is that wills are only for wealthy individuals. In reality, a will is not just a tool for the rich. It is a basic and important estate planning document that every adult should consider having. In fact, for someone with substantial assets, a will is usually only one part of a broader estate plan. Trusts, beneficiary designations, asset titling, powers of attorney, and other documents may all play an important role.

So, what exactly is a Last Will and Testament?

A Last Will and Testament is a legal document created during a person’s lifetime that provides instructions for certain matters after death. While the specific rules vary by state, a will can generally be used to:

1. Appoint an executor to handle the estate;
2. Tell the executor how certain possessions and assets should be distributed;
3. Provide instructions regarding a memorial or funeral service;
4. Provide instructions regarding the disposition of the person’s remains;
5. Leave final messages or guidance for family members, friends, or others; and
6. In some estate plans, transfer certain assets into a living trust through what is commonly called a “pour-over” provision.

Benefits of a Will

A will can be a practical and useful estate planning document for several reasons.

First, a will is generally simpler to create than a trust. Depending on state law, certain wills may even be handwritten, although formal execution requirements must still be followed.

Second, because a will is usually less complex than a trust, it may be less expensive to prepare.

Third, a will can often be prepared relatively quickly, especially when compared to a more comprehensive trust-based estate plan.

For these reasons, a will can be an important starting point for individuals who want to make their wishes known and avoid leaving all decisions to default state law.

Limitations of a Will

That said, a will has limitations.

One of the most significant is probate. If a person passes away with assets above the applicable state threshold, those assets may need to go through probate. Probate is a court-supervised process for administering an estate, and it can be time-consuming and expensive. Attorney’s fees, court costs, and delays can create additional stress for the people left behind.

During the probate process, the executor may also be limited in what they can do until the court grants the proper authority. This can create practical challenges for family members or beneficiaries who need access to assets or assistance with estate matters.

A will also generally contemplates a relatively short-term estate administration process. A trust, on the other hand, can be designed to continue for a longer period of time and may include detailed instructions about how and when assets should be distributed or used.

How Wills Fit Into a Comprehensive Estate Plan

In a more comprehensive estate plan, a will is often used together with a living trust. In that situation, the will may identify the trust and include a “pour-over” provision. The purpose of that provision is to direct certain assets into the trust if they were not formally transferred to the trust during the person’s lifetime.

A pour-over will can be a helpful backup tool, but it should not be viewed as a substitute for properly funding a trust. Depending on the type and value of the assets involved, assets that were not properly titled may still require probate before they can be transferred into the trust.

What a Will Does Not Control

It is equally important to understand what a will does not typically control.

For example, a will generally does not determine who receives life insurance proceeds if the policy has a named beneficiary. Likewise, a will usually does not control who receives retirement plan assets, including IRAs, 401(k)s, and similar accounts, when those accounts have designated beneficiaries.

Beneficiary designations often control regardless of what a will says. That is why reviewing beneficiary designations is such an important part of estate planning.

When Should You Create a Will?

In my view, every adult should consider having a valid will. This is especially important if you care about who receives your assets, who handles your estate, or how certain personal matters are addressed after your death.

If a person dies without a valid will, they are considered to have died “intestate.” In that case, state law determines how certain assets are distributed. The result may not reflect what the person would have wanted. In my experience, intestate estates often take more time and can be more costly to administer than estates with a valid will.

You should also consider reviewing or updating your will if:

• You have moved to a different state;
• You have married, divorced, or entered into a new long-term relationship;
• You have had children or grandchildren;
• A named executor, trustee, guardian, or beneficiary has passed away or is no longer the right choice;
• Your financial situation has changed significantly;
• You have acquired real estate or business interests;
• Your existing will is several years old; or
• Your wishes have changed.

Final Thoughts

A Last Will and Testament is an essential part of an estate plan, but it is only one piece of the overall picture. For many individuals and families, a complete estate plan may also include a living trust, powers of attorney, advance health care directives, and updated beneficiary designations.

If you do not currently have a will, I recommend speaking with an attorney who handles estate planning matters. If you already have a will that has been in place for several years, it may be time to review it and determine whether updates are needed.

At the same time, it is wise to discuss whether a living trust may be appropriate for your circumstances and to review the beneficiary designations on retirement plans, life insurance policies, annuities, and other accounts.

Estate planning laws vary by state, and each person’s situation is unique. A qualified estate planning attorney can help ensure that your documents reflect your wishes and comply with applicable law.

-Dave