It seems like we have days, weeks, or months for everything. While they may sound silly on the face of it, they can also provide good reminders of what we should be doing. August is no exception.
August is National "Make a Will" Month, a great annual reminder to update your will if needed and create a will if you don’t have one. A will is an important estate-planning document that can help you quickly transfer your assets. It allows you to decide how your assets will be transferred by beneficiaries. I’m fairly certain you’d rather lay out your instructions to ensure a smooth transfer than have the government make those decisions on your behalf through probate.
So, what are wills, how do they differ from trusts, why do you need one, and how do you create one?
What Is a Will?
A will, or a Last Will and Testament, is a legal document that outlines your intention to distribute your assets after your death. It is an integral part of a comprehensive estate plan, helps your loved ones avoid legal and financial loopholes, and instructs what to do with your assets. These explicit instructions are essential and can help prevent many headaches for your beneficiaries, which can be especially important during their grief.
Wills vs. Trusts
When researching estate planning documents, you will likely come across both wills and trusts. While both documents can help dictate what you want to do with your assets when you’re gone, there are a few differences. To highlight a few basics…,
One difference between a will and a trust is that a trust takes effect as soon as it’s created and signed, while a will does so only after you pass away. Because a trust takes effect right when it’s created, it can be used if you become incapacitated and unable to make decisions independently.
There are two different types of trusts to consider: irrevocable and revocable. Irrevocable trusts are trusts that can’t be changed or canceled after they have been signed. Caution should be exercised when creating irrevocable trusts. Revocable trusts, on the other hand, offer more flexibility. The grantor has the right to change the terms or even end the trust.
Trusts also provide flexibility in terms of controlling distributions. For example, trusts can have specific provisions to restrict distributions based on age or life events. We often call this controlling from the grave. A will does not allow for such limiting conditions.
Another difference between wills and trusts is that a will requires probate to transfer items to beneficiaries. In addition to the potential hassle of probate, wills are public record. Trusts, on the other hand, avoid probate and can remain private.
The one that is better for you depends on your situation and goals for estate planning. You should consult with an estate planning attorney for a recommendation.
Do You Need a Will?
We face so many financial obligations every day, so should creating a will be at the top of your list? Most financial experts say yes, you need a will. Even if you don’t have substantial assets to transfer, a will can help your family feel more confident about your wishes. In addition to making the transfer of assets easier, some common benefits of a will include:
- It allows you to distribute your property and protect your loved ones after you pass away.
- It can provide peace of mind for you and your family.
- You can plan for those in your care (e.g., naming a legal guardian for your children or pets).
- It may prevent family conflict.
- It can eliminate confusion over assets.
- It can ensure that your assets go to the people you want to have them.
- It can help you build a lasting legacy.
- You can use your will to benefit charity.
How to Create a Will
Creating a will can seem straightforward; however, it can be a complex process. Every state has specific rules regarding valid wills. We suggest you use the help of an attorney to ensure that your document contains everything it needs. Also, the process will depend on where you live because every state has different requirements for creating a will.
Generally, the first steps start with making some decisions. Determine the property you own and who you want to inherit your property. Unfortunately, the decisions don’t stop with your assets. You will need to name a trusted person to handle your estate and name them your executor. If you have minor children, you should also consider naming a guardian.
After you make your decisions and draft your will, you will likely sign your will in front of two witnesses, and these two witnesses will also sign your will. Some states require a self-proving affidavit that you sign before a notary, others require your will to be notarized, and some states don’t require any special self-proving documentation as long as you sign and witness your will correctly.
Whether you have $10 worth of assets or $10 million, a will can be an important part of your estate plan. Even though they require some effort on your behalf and force you to think about when tomorrow starts without you, the benefits are priceless. Not only can estate planning provide peace of mind, but it can also make life easier for your beneficiaries.
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