What Is a Last Will and Testament?
A last will and testament is a legal document that communicates a person's final wishes pertaining to their assets. It provides specific instructions about what to do with their possessions. It will indicate whether the deceased leaves them to another person, a group, or wishes to donate them to charity.
A last will and testament can also handle matters involving dependents, the management of accounts, and financial interests.
Some states allow for non-standard or unusual wills, such as a holographic will, while others do not.
- Having a last will and testament gives you some control over what happens to your assets after your death.
- If you die intestate, or without a will, your estate, including the distribution of all assets, is settled by the courts.
- If parents with children die without a will, the courts will appoint a guardian for those who are minors.
- Trusts and financial accounts. including life insurance policies, with named beneficiaries do not pass through probate court.
- Today, wills can be drafted affordably using an online will maker.
How a Last Will and Testament Works
A will and last testament directs the disposition of your assets, such as bank balances, property, or prized possessions. It will detail who is to receive property and in what amount. It can establish guardian arrangements for surviving dependents.
If you have a business or investments, your will can specify who will receive those assets and when. A will also allows you to direct assets to a charity (or charities) of your choice. Similarly, if you wish to leave assets to an institution or an organization, a will can assure that your wishes are carried out.
A person writes a will while living. Its instructions are only carried out once the individual dies. A will names an executor of the will. That person is responsible for administering the estate. A probate court usually supervises the executor to ensure that the wishes specified in the will are carried out.
A will and last testament can form the foundation of an estate plan and is the key instrument used to ensure that the estate is settled in the manner desired by the deceased.
While there can be more to an estate plan than just a will, the will is the presiding document that a probate court uses to guide the settling of an estate.
Any assets that have designated beneficiaries, such as a life insurance policy, qualified retirement plan, or brokerage account, are not included as probate assets and pass directly to the beneficiaries.
While many people obtain assistance with their wills from a lawyer, this is not necessary to make most wills legal and binding.
What Shouldn't Be Included in a Will
- Property you hold jointly with someone else
- Funeral plans: these should be in a separate document easily accessible after death by family or executor
- Life insurance policies and retirement accounts: these should have beneficiaries designated on the account forms so they bypass probate and flow directly to the intended recipients
What a Will Doesn't Do
There are several situations after death for which a will isn't useful.
Disposition of Certain Property
- Property held in joint tenancy with someone else
- Property assigned to a living trust
- Life insurance policies with designated beneficiaries.
- A pension plan, individual retirement account (IRA), 401(k) plan, or other retirement plan with designated beneficiaries.
- Financial assets (such as stocks and bonds) held in accounts that already have completed beneficiary forms.
- Money in a payable-on-death bank account.
Any property that your will directs should go to certain beneficiaries, whether people or organizations, most likely will be tied up in probate court for months before it can be distributed according to your wishes.
In addition to time and effort, the probate process involves legal fees relating to a lawyer, the executor, and the court.
Directing Funeral Arrangements
A will shouldn't contain directions for funeral arrangements. That's because, normally, it won't be reviewed for some time after death. Be sure to leave instructions for funeral arrangements in a separate document that's easily accessed by the executor or a family member.
Making Conditional Gifts
Gifts that you bestow through a will can't come with strings attached in certain cases. For instance, they can't be contingent on the marriage, divorce, or change of religion of a recipient.
Reducing Estate Taxes
A will doesn't allow you to reduce or avoid taxes that will be owed on your estate.
Leaving Money to Pets
Pets can't own property, so if your dog, cat or other pet is important to you, you can consider leaving them to a trusted individual who will provide them with a loving home or find one for them. Your will can provide that person with money to help them care for your pet(s).
Arranging Care for Someone With Special Needs
To provide long-term care for a loved one with special needs, it's best to set up a special needs trust. The trust can direct the care and provide ongoing income, without affecting the benefits they can also receive through government programs.
Addenda to the will, such as a power of attorney or a medical directive, can direct the court on how to handle matters if a person becomes physically or mentally incapacitated.
Last Will and Testament Requirements
Be of Sound Mind
A valid will requires that you be over the age of majority, understand what property you have, and what it means to leave property to others after your death.
Identify Assets and Beneficiaries
A will requires you to identify the assets and property that are to be bequeathed as well as the identities of the intended recipients (known as named beneficiaries).
Designate an Executor
A will should designate an executor to carry out the will's instructions according to the wishes of the deceased.
Parents of minor children can also designate a legal guardian in their wills to care for them, should death come unexpectedly.
Witnesses to Your Signature
For a will to be considered valid, it must be signed. Many jurisdictions also require that the signing of a will be witnessed by at least two unrelated individuals, aged 18 or over. Check your state laws for this information.
Types of Wills
The four main types of wills are the simple will, the joint will, the testamentary trust will, and the living will.
Use a simple will to list your assets and the beneficiaries who should receive them. You can also designate the executor and a guardian for any minor children.
A simple will is one that can be done easily online using one of various templates. Be sure to get any legal advice you feel you need.
A joint will is one document that involves two people, generally spouses. When one dies, the will is executed in favor of the other spouse, as defined in the will. The provisions can't be changed by the surviving spouse, which can be a problem if that spouse's circumstances change.
Joint wills aren't as common as they once were because of this inflexibility.
Testamentary Trust Will
This will contains one or more testamentary trusts that take effect after your death and the probate process (unlike, for example, a living trust which takes effect during your lifetime). It is used in instances where special needs beneficiaries or minor children need specific care over a long period of time. The trust distributes all or a portion of your assets after you pass.
This type of will only concerns your medical care and decision-making should you become incapacitated. It is a legal document that provides instructions for your care and, among other things, the termination of medical support.
It does not deal with a distribution of your property to beneficiaries or other such final wishes.
You don't need a lawyer to create a legally recognized and accepted living will. In fact, medical facilities or your state government can provide living will forms to you. Each state has specific legal requirements for valid living wills. Be sure that you understand them before creating one.
Wills vs. Trusts
Wills and trusts are both important estate-planning tools, but they differ in important ways. Trusts are legal entities created by individuals known as grantors (also known as trustors or settlors) that are assigned assets and instruct in the disposition of those assets. A trustee is designated by the trust document to manage and distribute those assets to beneficiaries, according to the wishes of the grantor as detailed in the document.
A trust can be created for a variety of functions, and there are many types of trusts. Overall, however, there are two categories: living and testamentary. A will can be used to create a testamentary trust. You can also create a revocable living trust for the primary purpose of avoiding probate court.
A will becomes active only after one's death. A trust, on the other hand, becomes active the day you create it. Trusts tend to be more expensive to create and maintain than wills.
Importantly, unlike wills, trusts do not go through a probate process and are not usually a matter of public record. A trust, however, can only deal with property or assets that are assigned to it.
|Wills vs. Trusts|
|Trusts vs. Wills||Names Guardianship of Minor Children||Can be Challenged in Court||Probate Court||Rules Around Inheritance||Active upon Signing||Can be Revised||Private or Public Record|
|Trusts||No||Not usually||No||Yes||Yes||Yes, if revocable||Private|
How to Create a Will
Here are the steps to take to create a will.
- Consider whether you'll work with an estate lawyer in a traditional manner to create your will or create it using an online service. Establish contact to get the process moving.
- Decide on the assets that you want to include in your will.
- Name your beneficiaries and the property each should receive.
- Designate an executor. Be sure to get their consent first.
- If you have minor children, appoint a guardian for them. Again, obtain their agreement beforehand.
- Sign your will. Two witnesses to your signing are required in most states and some may require more (check your state's laws on this and whether your will must be notarized).
- Store your will safely. Consider a safe deposit box at your local bank and make sure your executor is legally authorized by the bank to access it.
- Periodically review your will and make updates to it as needed.
Creating a will can often be a simple and inexpensive process where you fill out a form online without the help of an estate planning attorney. Online will makers allow you to draft, print, and sign your last will and testament via an online or downloaded document creator.
This is a more cost-effective way to establish will and trust documents compared to going to an attorney or in-person legal service. Most online will makers walk users through a series of questions to populate the required fields.
There are important distinctions between a will and a trust. Unlike a will, which can sometimes be written on one's own or using an online will maker, trusts normally are created with the assistance of a qualified attorney.
Consequences of Not Having a Will
When a person dies without a valid will, it is said that they have died intestate. This means that the state becomes the executor of the estate. It decides how to distribute the property and who receives payment first, without consideration for a family’s circumstances.
Any blood relative can stake a claim to the estate. The court can even establish guardianship arrangements based on its determination of the best interests of the children.
The probate laws in most states divide property among the surviving spouse and children of the deceased. For example, a resident of Arizona, New Mexico, California, Texas, Idaho, Nevada, Washington, Louisiana, or Wisconsin who dies without a valid will will have their estate divided according to the community property laws of the state. Community property laws recognize both spouses as joint property owners.
In effect, the distribution hierarchy starts with the surviving spouse, who almost invariably receives at least half the decedent's estate. They may receive the entire estate if the decedent leaves no living children or grandchildren.
If the decedent is unmarried or widowed at the time of death, assets will be divided among any surviving children before any other relative. If no next of kin can be located, the assets in the estate will become the property of the state.
Where Can I Find a Last Will and Testament Maker Online?
Investopedia has reviewed several top online will makers. To suggest the best, we've taken into consideration ease of use, availability in all states, and the ability to update information easily.
What Is a Codicil to a Last Will and Testament?
A codicil is an addendum of any kind to a will. It is a separate document that references and amends the will. Codicils allow one to change, add to, or remove provisions in a will. These changes can be made to keep a will and testament up to date, especially as personal circumstances change over time. Codicils can only be created by the original creator of the will.
What's the Difference Between a Last Will and Testament and a Living Will?
A living will does not have anything to do with the transfer of assets upon death. Also known as a healthcare directive, this legal document allows an individual (while they are alive and mentally capable) to empower another person to make decisions about their medical care if the person signing the living will becomes incapacitated. Healthcare proxies can communicate with the patient's doctors to prevent unwanted treatments and make sound decisions on their behalf.
How Much Does a Last Will and Testament Cost?
Cost depends on the nature of one's estate and how complex the process of designating beneficiaries may be. A basic will can be drafted for free by an individual on their own. Online will makers range from tens to hundreds of dollars depending on scope. Hiring a lawyer can cost hundreds to thousands of dollars.
The Bottom Line
A last will and testament is a fundamental legal document in an individual's estate plan. It lays out a person's final wishes pertaining to their assets. It provides specific instructions about how to distribute their possessions.
There are certain things a will cannot accomplish for a person, such as help a family avoid probate or reduce estate taxes.
Wills can be simple to create but have requirements that must be addressed in order for them to be considered valid. Please check your state laws regarding a last will and testament to be sure you take the right steps when creating yours.