Will preparation is probably the last thing you think about on a given day – in fact, many Americans don't have a will in place. Even if it's difficult to think about, the importance of having a will in place should not be minimized. Regardless if you just haven’t gotten around to it, don't think it's an urgent matter, or find it depressing to think about, you should not avoid putting together a will. (See also: Estate Planning: 16 Things to Do Before You Die.)
If you die intestate--meaning without a will--you effectively hand over decision-making control to the government, which can mean:
- If you have dependent children, someone else may decide who raises them.
- There will be less money left in your estate to go to the people and causes that you care about.
- There will be time wasted in probate, creating a major hassle for your family or friends.
- There is potential for people to fight over what you would have wanted to happen with your estate.
The good news is that these problems can be avoided by creating a will. Will preparation does not need to be too complicated or costly.
Will Preparation Basics
Otherwise known as a last will and testament, this is used to specify your final wishes, appoint someone to carry them out, and to transfer your assets to the person(s) that you choose. You can also name guardians for your dependent children.
Each state has its own legal guidelines concerning the creation of a will. For instance, some states may allow holographic or videotaped wills; others may require you to create a typed document following a specific format.
In general, your will should specify how you would like your assets to be distributed after your death, name a minor guardian for your children if applicable and name someone to act as executor of your estate. (See: What is a Will and Why Do I Need One?)
A will must also be appropriately witnessed and signed. You should note that a will alone does not necessarily avoid the process of probate. If you own property in your name alone, there must be a court process to “prove" the will, and satisfy creditors. In order to avoid probate, you might consider a living trust.
Other Types of Legal Instruments Used to Dictate After-Death Wishes
Will preparation actually involves two things: leaving instructions about what you want to happen with your money and possessions after you die, and making your wishes known in the event that you should become ill and unable to handle decisions yourself. Many people don’t understand the difference between several legal instruments that are commonly used.
1. Revocable Living Trust
Otherwise known as an “inter-vivos” trust, this simply replaces a will as your core estate plan document. A living trust avoids probate for any assets held by your trust, facilitates ease of transfer or distribution of the trust assets without court involvement, and retains privacy.
You remain the beneficiary of all your assets until your death, which are controlled by a trustee. The term “revocable” means that you can change or cancel it at any time while you're still competent to do so. (See also: Establishing a Revocable Living Trust.)
2. Living Will
Otherwise known as an advanced directive or health care directive, many people confuse this with a last will and testament. A living will basically allows you to make decisions in advance about life support and organ donation – and, very importantly, to name someone to manage your healthcare if you are no longer able to do so.
3. Durable Power of Attorney (DPOA)
This delegates authority to another person. The authorities that are delegated can be broad and general in nature, or the powers may be limited. Unlike your will, which only takes effect upon your death, a Power of Attorney is in effect only while you are alive. The durable nature of the instrument means that the authorities delegated can continue to be exercised during any period you suffer incapacity.
If you're in an accident that results in you being hospitalized in a coma, without a durable power of attorney, nothing can be done with your assets until you die. Your funds are stuck. For this reason, a DPOA may be the most important estate planning document to have in place, particularly for married couples. (Read more: Power of Attorney: When You Need One.)
Make Will Preparation a Priority
Regardless of the difficulty that some might feel when it comes to discussing wills or after-death wishes, avoiding putting a will or some type of legal document in place is a mistake. It's best to be prepared and have a plan in place. Take the time to determine which type of legal instrument you should implement to best carry out your wishes should anything happen to you. (For more by this author, read: Charitable Giving: Creating the Biggest Impact.)