Let’s face it; nobody relishes the task of making out a will. Squarely addressing the prospect of your own mortality can be upsetting enough. But the financial questions surrounding what and how to arrange for one's heirs are disconcerting, too.
Baby boomers in particular are facing this challenge. The youngest of the 76 million people born between 1946 and 1964 are now 50 years old, the age ripe for tackling long term financial planning.
Why You Should Write a Will
You should prepare a will so your heirs will be taken care of in an organized, legal and efficient manner, according to your wishes. The process doesn’t have to be intimidating, even though the procedure can seem daunting.
“Most people do not do estate planning simply because they don’t know an attorney and think it’s very complicated,” said Susan Spraker of Spraker Wealth Management in Maitland, Fla. “People need to know [that] it is not complicated at all. They need a referral to an attorney who has been vetted by someone.”
Making out a will can be straighforward: Simply write down on paper how much money – with the amount usually denoted in a percentage basis – goes to each person. You can designate, for example, 25% or 30% to go to each of your children and the remainder to a designated charity.
When you have done this part, you need to get signatures of witnesses, which amounts largely to a legal formality. The number depends on which state you live in.
To fully execute a will that won't be challenged in court, you will need to hire an attorney. Mark Diamond, a Stamford, Conn. attorney, suggests considering two factors:
- Make sure he or she has experience in making out wills
- Consider the price. Cost should not be prohibitive. The dollar figures varies based on factors such as the complexity of the person's situation: Does he or she have a second marriage or complicated family structure? These situations can increase the costs of hiring a professional to draft your will. People can spend under $100 to make out their will online, but this is like doing your own taxes - it can be risky because your expertise is not necessarily high.
“Ultimately,” Diamond said, “making out a will boils down to specifying the terms of how much money people will get – and how they will receive it. There are often specific considerations. If a child of a minor’s age is involved, for example, you may not want to leave money to someone who is so young. In that case, you’d establish a trustee – perhaps one of the parents - until the child reaches a certain, specified age.”
The big challenge, of course, can be in deciding who gets what. We must ask ourselves difficult questions: For openers, will my heirs respect my decision and continue to love me, without feeling any bitterness over who got exactly how much of the money?
Am I leaving my personal fortune, everything I have worked so hard for over the course of my entire life, in the right hands? Am I being both fair and wise?
“Many people feel an obligation to leave their entire estate in equal proportions to any children, but this may not be successful in accomplishing their philanthropic or legacy goals,” said Derek Tharp of Mote Wealth Management in Cedar Rapids, Iowa.
Why You Should Update Your Will Every Few Years
“The reasons to review wills include a change in the amount of wealth to be passed,” said Susan Elser of Elser Financial Planning in Indianapolis. “Perhaps you want to consider bequeaths to charities or grandchildren, a change in your comfort level of passing wealth to beneficiaries.”
Elser points out that perhaps a child “does not appear to handle finances well or has a drug/alcohol dependency creating the need for a trust.” Another example is if, “you have a special needs child or grandchild (or) a child’s marriage appears to be in jeopardy,” Elder noted.
What You Need to Understand about Estate Tax Laws
Are you passing on your nest egg in the smartest way possible, by minimizing any tax burdens on your loved ones so they can wind up with most of the money – and not the government?
“Estate taxes are not a big issue now that the exemption amount is over $5 million,” said Dena Minning, a financial planner with Personal Asset Management in Treasure Island, Fla. “So, if someone dies with an estate less than that, there won’t be any estate taxes due at all. Of course, if they have an estate larger than $5 million, they should definitely talk to an estate planning attorney about ways to minimize the real-estate taxes.”
Americans Aren’t Prepared
Despite the seriousness of making out a will, a 2010 Forbes piece showed that half of Americans at the time had not arranged even the most elementary estate-planning records.
A national telephone survey conducted by the Harris Interactive for Lawyers.com, a division of Reed Elsevier, showed that many people who had not taken action were intimidated by the legal expense and their own ignorance. Many of the Harris respondents said they “mistakenly believed that those without large assets didn’t need to plan.”
In the poll, a mere 35% had a will detailing who’d get their money. Older Americans were likelier to make provisions; 77% of the people over the age of 55 had signed at least one such document, compared with 24% of the folks under 35.
The Bottom Line
A psychologist might deduce that most of us live in denial and that’s why we haven’t made financial plans for our heirs. But it’s more likely that we just don’t want to face the task – which is foolhardy behavior. If you’re on the younger end of the baby-boomer spectrum, don’t be misled into thinking you have plenty of time before you need to worry about creating a will. As is proven all too often, life can end suddenly. It’s wiser to be smart and take the initiative to make out a will. Don’t just do it for yourself. Do it for your heirs. They’ll thank you for it.