This article is a follow-up to my last one about leaving a legacy and estate planning. Once you get some up-front planning done, the next step is to put things in writing.
I redid my own estate plan (my will and associated documents) last year, and I occasionally get questions about the best way to get this done. I think this is a pertinent subject, regardless of your age or season in life.
A quick reminder up front: I’m not a professional financial adviser or an attorney, so you should treat everything on this site as educational and not as advice for your particular situation. That’s all the more true for legal advice. If you need legal advice, consult an attorney. If you need help with tax planning, talk to a CPA. If you need financial planning, work with a Certified Financial Planner. But, as I have worked through some of these things I have learned a little and hope to share it with you in this article.
This article provides information about finalizing your estate plan and getting specific things like your will and other important directives in place. You need to take these steps now, while you’re alive, so you don’t leave a mess for your family; and, depending on your situation, that may need to include working with an estate attorney and other professionals.
You may be surprised to learn that wills are actually mentioned in the Bible:
For where a will is involved, the death of the one who made it must be established. For a will takes effect only at death, since it is not in force as long as the one who made it is alive. Hebrews 9:16-17 (ESV)
I am taking these verses out of context, but they clearly show that wills were commonplace and functioned much the same as they do now. In this verse, the Bible instructs us to “get our house in order”, and a will is one of the ways to do that:
In those days Hezekiah became sick and was at the point of death. And Isaiah the prophet the son of Amoz came to him, and said to him, ‘Thus says the Lord: Set your house in order, for you shall die, you shall not recover.’ Isaiah 38:1 (ESV)
Why you need a will
You could think of a will this way: You and your husband are leaving your children, ages 12, 15, and 18, alone for a week while you go away on vacation. You will be out of touch from time to time, so you put a list together for them of the important things you want them to do while you’re gone. You won’t be there, so the more important those things are, the more specific you need to be on the list. Then you can leave with some peace of mind that your children will know what they need to do and/or who to contact if they need help.
A will serves the same purpose after you leave this life. Unfortunately, you can’t communicate back from heaven (not as far as I know.) But with a will you can not only specify your desires, you can be as detailed as you want (or need) to be. And, if you have everything in place, you can leave knowing that things will be taken care of. If you leave without one, chaos and perhaps even harm or loss can occur. Bottom line: a will is an essential part of good stewardship.
Simplify things as much as possible
In my last article, I discussed some things to think about in terms of living and planning your legacy and leaving an inheritance for your children, grandchildren, and others. And a will is essential and the main way to specify your wishes after you’re gone. But before we get to that, there are other things that are fairly easy to do that can make things as easy and as simple as possible and keep as much of your estate as possible out of probate, if that is your goal.
You know how much I prefer simplicity in financial matters. What I’m talking about here are things like beneficiary designations and Transfer on Death (TOD) or Payable on Death (POD) provisions, which are all used in different situations but all come down to the same thing: By putting these basic legal provisions in place with your financial institutions (bank, investment firms, insurance companies, etc.), you’ll ensure that specific accounts go immediately to heir(s) without any need for passing through probate. It’s easy, simple, cheap, and basically foolproof – there is no ambiguity or delay as the names are in writing. This is the very best thing for the vast majority of people, especially couples. And remember, in most cases, you can list beneficiaries and contingent beneficiaries as well.
Another way to keep things simple and your assets out of probate is simply to use joint accounts and joint titles in the first place. That way accounts and assets like savings, houses, and vehicles pass to the joint owner — most often your spouse — on your death, instead of into your probate estate.
You may or may not need a trust
If you consult with an attorney, in many cases their tool of choice to avoid probate will be a trust. Trusts have many uses, including asset protection and caring for minors. But, as a tool for avoiding probate in otherwise simple estate situations, my opinion is that they can be an expensive and complex overkill, especially when you are older and your children are grown. See if beneficiary designations and Transfer on Death/Payable on Death can do the job for you instead.
That said, if for whatever reason you want (or need) to avoid putting your entire estate through probate, an alternative is to create a “revocable living trust.” This trust is created while you are alive, and you transfer assets to the trust (put your assets in the name of the trust). There is a fair amount of up-front effort involved, but doing this while you are alive is far easier than having your executor do it after you are gone.
I had a living (revocable) trust when my children were younger because if I passed away, I wanted all my life insurance proceeds and other savings and possessions to go into a trust. That way, the assets would be professionally managed and there would be regular distributions to my wife and children for many years to come. Now that I am older and my children are grown, I no longer see a need for it, so I revoked it several years ago when I re-did my will. Now, everything I want to accomplish is handled through beneficiary designations, joint ownership/title with my wife, and my will and associated documents.
One really good thing about a trust is that it also enables you to specify the distribution of assets sometime in the future (e.g., when children or grandchildren are going to college, marry, or buy the first house, for example). This can be a distinct advantage because you have no way to determine how large your estate will be, or what amount of assets may be needed by your beneficiaries, or whether your spouse will die after you.
If an individual in your family is disabled (physically or mentally), you might investigate a Special Needs Trust. This type of trust exists for those who can’t take care of themselves due to their special needs. If the individual qualifies for SSI, a Special Needs Trust can be set up and provide income without compromising the SSI payments. For this type of trust, you should consult with an attorney that has the special expertise to deal with it; many estate attorneys do not.
Of course, a trust must have at least one trustee to manage its assets. Selection of trustees is as important as the selection of an executor for your will, which I’ll discuss later, and the selection criteria are generally the same. Financial institutions really like to be the trustee because of the opportunity to charge management and transactions fees on the assets. If you choose one, just make sure you understand what services will be provided and at what cost.
If you’re like the majority of people, most of your retirement savings resides in a tax-deferred account (like an IRA) and your heirs may also have (or are willing to setup) IRAs. Or, you have them in a 401k/403b and you plan to roll it over into an IRA when you retire. In either case, a Stretch IRA may be advantageous.
You may not have ever heard of the term “Stretch IRA” or “Multi-Generational IRA.” It is actually not a category of IRA, such as a Traditional, ROTH, SEP, or SIMPLE; instead, it is more like a financial planning and management concept that became available based on some changes in the tax code.
You may want to keep that IRA to live on but have some (or all) of whatever is left go to your children when you die. If you designate the children as beneficiaries, they can put the assets into their own “stretch IRAs”. Although the dreaded “Death Tax” has to be paid for transferring the assets, this technique allows the income tax to continue being deferred in the future. The children then have the assets in an IRA and can continue having them grow.
You most likely do not need to do anything to make your current IRA a “Stretch” IRA, but it is good for you to be aware of it for planning purposes. It may change who you name as your beneficiary or the instructions you want to leave that beneficiary.
The same kind of transfer can occur when one of the children dies. The transfer now goes to his named beneficiary, your Grandson for example. The lifetime of your original IRA can, therefore, be stretched over several generations. Sounds pretty good, right? Well, several issues arise from stretch IRAs:
- Your assets must be in an IRA,
- Your beneficiaries must have IRAs,
- The law must continue to allow stretch IRAs,
- The Minimum Distribution Requirement (MDR) applies immediately to the beneficiaries,
- You need to cope with the problem of pre-deceasing your spouse (because the spouse would not receive the assets to live on).
If you decide to use the stretch IRA approach, you should definitely look to a specialist in the area – probably an estate attorney or a Certified Financial Planner.
Also related to the estate tax and the exemption is gifting and gift taxes. Some people use gifting between generations as a way to transfer assets to younger generations before death and probate issues enter the picture. I discussed this briefly in the previous article.
Other forms of charitable giving, through outright gifts, charity annuities, etc., are ways to give while you are alive and can see the impact they have on individuals as well as organizations.
Choosing your executor
One of the most important decisions you will make is about who will make sure that your wishes will be honored and executed after you die. Well, it will be your executor, of course. And one of the most important reasons for a will is to actually name your personal representative or executor — the individual who will be legally responsible for administering your financial affairs after your death.
But who will that person be?
Typically, after one spouse passes away, everything is left to the surviving spouse. If your will is written that way, and you have everything set up in terms of joint ownership/tenancy/tile and your beneficiaries as discussed above, there will be very little to do in terms of executorship – everything will easily pass to the surviving spouse.
But what if your spouse (heaven forbid) should die at the same time? In that case, you will need an executor. Also, what if your spouse just isn’t able to manage things very well, or becomes incapacitated after the will is written? You will need one in those situations as well. Of course, once you are both gone, an executor is mandatory.
Perhaps you would like to make one of your children your executor (many people do). This is perfectly fine, but they must be up to the task. Whoever you choose (hopefully with the agreement of your spouse) should have the capability to faithfully execute your wishes. It is also sometimes a good idea to name a secondary executor to assist. If you happen to have a CPA, financial planner, or lawyer friend who would be willing to act in that way, then all the better. Just make sure they will be around if you need them, especially if they’re about the same age you are.
In general, here are the main criteria you may want to consider when choosing an executor:
- If the estate has appreciable assets, the executor should have a general understanding of the financial aspects of investments, inheritances, and financial transfers. (Or, know how and where to get help.)
- Commitment to executing the desires and requirements you have specified.
- Ability to deal with the conflicting objectives that heirs may have.
- Enough self-discipline to file all the required documents and reports, and to generally stay on top of things.
Do several people come to mind? If so, here’s another criterion: Getting it all done on time – even if normal work and family commitments must be honored simultaneously with being your executor.
An alternative to having a family member as executor is to designate a trusted friend or one of the professionals listed above such as an attorney who specializes in estate law. Of course, the same criteria apply to a friend or an attorney as to a family member. In addition, you need to be sensitive to the possibility that the people move, change, grow older, and die; so this may be a bit challenging.
Maybe the answer is your bank or other financial institution’s representative who promises to honor your wishes. That’s until it is merged with another institution that “forgets” the commitments of the individual making the promises (who, of course, is no longer with the institution), or now has a different set of financial objectives. The problem with this, of course, is a possible conflict of interests as, in general, banks and financial services firms want to get their hands on your assets for management.
So, should you select a family member to do the work? I don’t know because I don’t know your family. However, if you choose to have a family member (or other individual) to be your executor, you should check to make sure that individual agrees to take on the task. In addition, you should make plans (perhaps a secondary executor) in case that person isn’t available for whatever reason.
Now go git ‘er done
The most important thing is to get your will done before you die, and none of us knows when that will happen. So, it’s best to get it done ASAP!
Although wills are essential before death, estate attorneys are not. I originally used a paralegal service (and their attorney) to draft our wills and a living trust many years ago. It was quite expensive. But to draft our most recent wills, I turned to the company that helped me do it myself for the first time several years ago: Nolo. Their Quicken WillMaker Plus 2016 (I actually used the 2015 version) has little competition and receives great reviews. For an online alternative, you can check out the offering from LegalZoom or U.S. Legal Forms (Dave Ramsey’s recommended service). Note the time constraints for each offering: For example, LegalZoom gives you 30 days of revisions. WillMaker works on your computer indefinitely, but you don’t get updates to the latest legal language beyond the current year, without paying for an upgrade. (I would personally be comfortable updating every 2 or 3 years as basic estate law doesn’t generally change that much or very often.)
As a long-time Quicken user for budgeting and bill payment, and having used a previous version of WillMaker, I easily made the choice to use the program again this time around. Plus, my situation isn’t actually all that complex. I think one of Nolo’s greatest selling points is that their attorneys stay on top of both federal and state estate law, ensuring that the will you generate stands up to scrutiny in your chosen state. If that still concerns you, then by all means, hire an estate attorney to do your will for you.
Willmaker has a clean, simple user interface that lets you work on 5 “Essential Documents” from the start then create dozens of additional documents for more specialized situations later if needed. When you open an individual document to work on, you go through a step-by-step interview process driven from a master outline to which you can return at any time. You can proceed in sequence or go back to a previous point.
The online help, both for the software and for the estate law, is also very good. And when you are done you can proof the finalized will on screen, print it, and generate a PDF if desired. That lets me keep a printed copy in my fire safe at home, and also a copy that is password-protected “in the cloud.” You could also encrypt it if you wanted to…more on that in another article.
A final really cool feature offered for the will document alone is the ability to duplicate it as the starting point for a spouse’s will. This saves a lot of work for wills that are virtually identical, which is typically the case.
WillMaker is so good at its job that the final step in creating a will — witnessing and notarizing — becomes almost the bigger hurdle. Fortunately, many banks offer this service, even if you aren’t an account holder. But, to be sure, it’s worth a phone call before you make the trip to a nearby institution. If you have a friend that can do it, as my wife and I did, then all the better.
Other Essential Documents
In addition to your will, WillMaker includes four (4) other documents in its list of “essentials.” What you do with these documents will determine the extent of confusion and effort that your heirs will need to cope with when you die. These are not exactly “Do It Yourself” documents; the laws vary from state-to-state, and adhering to those laws is critical. So use something like WillMaker or get an estate attorney in your state who specializes in these documents to do it for you.
The first essential document is the Health Care Directive (which is composed of two documents in my state: a Living Will and Health Care Power of Attorney). This is the document to use in order to have some control over the medical decisions that are made at the end of life. Why so important? Well, if you don’t put this in writing, then doctors may be obligated to keep you alive regardless of the emotional and financial cost to your family, or your quality of life. Your own personal experiences, beliefs, and values have to guide you there. The document gives you the opportunity to express those as well as more specific things so that others – especially your family – can better navigate the complexity of end of life decisions.
An important aspect of this is the Health Care Power of Attorney that gives someone the authority to make medical decisions for you in case you are unable to do so (e.g., in a coma). This person becomes your legal agent to act on your behalf and in accordance with your wishes.
The second essential document is the Durable Power of Attorney for Finances. A Durable Power of Attorney names another person to act on your behalf. This is primarily important for a possible period when you are incapacitated but alive. Because you may not be able to take any actions involving your assets, you need to specify someone else to do that for you. You may decide that you don’t need this one, at least not yet. However, as both you and your spouse get older, this one becomes more necessary.
The last two essential documents WillMaker calls Final Arrangements and Information for Caregivers and Survivors. I didn’t actually use these as I had already written a “Letter from your husband who is now in heaven” to my wife (yes, that’s the actual title), but this is something you definitely need to consider. The letter contains all the details that my wife, and/or an executor or personal representative needs to know if I am gone or incapacitated. This is not a legal document per se’ and the information changes more frequently than the information in my will so it makes a lot of sense for it to be a separate document.
You can use these documents to cover such things as, among others: the probate process, the locations of wills/important documents/valuables, final care wishes, bequests, computer and online account access, inventory of assets, account management and cash flow, insurance policies in force, business transition, investment management including lifetime income, and recommended contacts.
I can’t stress strongly enough how important this is, especially for whichever spouse is the finance “nerd” in the family. This is an “open after I’m gone” letter. Most people don’t ever write this letter because they don’t want to think about the end of life, or because they just don’t know where to start. (It is kind of strange writing a letter while imagining that you are dead.)
In addition to some tongue-in-cheek comments here and there (who wouldn’t want a chuckle if they had to read a letter like this), I mainly provided information and instruction on our financial (banking and investment) and insurance accounts. But I also provided some miscellaneous information, such as information on where this blog is hosted, etc., and other online services that I use such as my cloud accounts. Some accounts and valuables may be listed in your will or revocable living trust, but many are not.
In addition, the typical estate planning documents do not have contact information for your professional advisors, usernames and passwords for your accounts, or notes and instructions. You ought to specify the location and approximate value of your important possessions. Your major accounts may have named beneficiaries, but what about sentimental pieces like jewelry, art, or vehicles. Specify exactly which sentimental items go to whom (if you didn’t already in your will). Your Financial Inventory will make things much easier for your surviving spouse and/or your other beneficiaries. However, it will also prove to be a valuable tool for you by forcing you to organize your financial life.
You would keep a copy of the letter at home with your estate planning documents and one with your attorney. Storing it in a safety deposit box might make it difficult for your beneficiaries to access. Update the letter frequently to make sure it says what you really want to say. I update mine every year or two. I keep a copy in my fire safe at home and another in my cloud account.
Are you convinced?
I hope you are convinced that having a will is very important and if you don’t have one, you will go git ‘er done as soon as possible? And also that it may be easier to get it done than you thought! I hope so. And remember, if you think you need legal advice, then, by all means, go get it – don’t let that stop you from doing this. But If you’re comfortable with it, use one of the lower-cost options I discussed above. You will experience the peace of knowing that your “affairs are in order” no matter when your life on this earth may end.