Estate Planning: Introduction To Wills

by Cathy Pareto, CFP®, AIF® (Contact Author | Biography)

A will is a document that describes how you want your property and owned interests distributed after your death.

Why You Need a Will
There are many reasons why you need a will. A will is especially crucial if you have young children and would like to make the decision of who will take care of them, both financially and physically, in the event of your death. You also need a will if you care who receives your property after you die. Whether make a will or not, you are making a choice. If you don't have a will, your choice is to allow your state to take care of making these decisions for you. If you do make a will, your choice is to make sure your loved ones are taken care of according to your wishes.

Requirements for a Valid Will
For a will to be considered valid, the following criteria must be met:

The will has to be executed according to your state laws.
You must be of sound mind at the time the will is prepared.
You must understand the results of preparing your will.
You must understand the nature and extent of the property you own.
Generally you have to be at least 18 years of age, or the age of majority as defined under the laws of your state.
The will has to be signed, dated and witnessed by the number of people required under the laws of your state.
Some states require that your signature and those of your witnesses are notarized.

A will can be amended to change the provisions. The amendment, referred to as a codicil, is subject to the same requirements as the original will.

Valid Forms of Wills
There are three generally acceptable forms of wills. These are:

Typewritten or Witnessed Will: This type of will is authorized in every state, and more often than not they are drafted by attorneys. They must satisfy the state's witness requirements; for instance, a state may require that the witness be at least a certain age and must be considered 'credible'.
Holographic Will: This is a will that is completely handwritten, dated and signed by the person making the will, and is not witnessed. This type of will is legal in only some states, and it should be used as a last resort.
Nuncupative Will: This is an oral will and is only allowed in a few states and under very limited circumstances. For instance, it may be considered valid only if the testator was unable to create a written will because of sudden illness that led to his or her death. An example that is often used is a soldier dying in combat. Nuncupative wills are usually limited to personal property, and state law may place a cap on the value of the property that it can cover.

State law should be consulted to determine the types of wills that are considered valid within the state. Some may allow less than the three listed above, some may allow all three and others may even have a more expansive list of what they consider valid wills.

Important Will Terminology You Should Know

Testator
One who has died leaving a testament or will. The testator must satisfy requirements as defined under state law. For instance, a state may require that the testator be considered to be of sound mind when the will is made, must not be an infant, must not have been under duress when the will was made and must not have been in a state where he or she was deprived of his or her free will when the will was made.

Executor
The executor is the party named by the testator to carry out the terms of the will, which includes settling outstanding debts and distributing the assets to the beneficiaries. (Read about the importance of this role in Choose The Right Executor.)

Bequest or Bequeath
Also sometimes referred to as a legacy, this is the act of giving personal property by will.

Guardian
Person who has been named in a will or appointed by a judge to take care of minor children or a special-needs adult. Naming one person as the executor and another as the guardian can make sense in some cases if the guardian is not well equipped to handle financial matters. The court is not required to honor the guardian named in a will, but usually does unless there is evidence that the individual is incapable of handling the role. (Read Special Trusts For Special Needs for more information on how to ensure your loved ones with special needs are taken care of.)

Residuary Estate
This is what's left in the estate after all gifts are made and debts, taxes and other costs associated with the estate are paid.

Probate
Probate is the process used to make an orderly distribution of property from a decedent to a group of beneficiaries. The court essentially supervises the transfer of property, filing of claims against the estate by creditors and the publication of a last will and testament.

Assets subject to probate include the following:

"Singly", or individually, owned assets.
Property held by tenancy in common.
Community property.
Assets where the beneficiary is designated as the "estate of the insured".

Assets not subject to probate include the following:

Property conveyed by deeds of title.
Property held by joint tenancy with rights of survivorship (JTWROS).
Government savings bonds.
Trusts.
Payable-on-death accounts.
Annuities.
Retirement accounts.

Ancillary Probate
This is a second probate process for real estate located in a state other than that of the decedent's state of residence. This is necessary because a will can only dispose of the decedent's personal property located in the state of the decedent's residence.

Benefits of a Will

A will gives you the opportunity to make sure certain matters are handled in accordance with your wishes after your death. These include:

Allowing you to choose in advance how you want your property to be distributed.
Appointing a guardian for your minor children or other individual who requires guardianship.
Choosing the executor of your estate.
Designating a successor custodian in cases where you are serving in a custodial capacity for a minor or special-needs adult.
Providing for individuals who would otherwise not have been eligible to receive property you leave behind.

A will can also allow you to donate property to charities of your choice and choose the assets that would be used in the donation.

What You Cannot Accomplish With a Will
Here are some things that a will cannot accomplish:

Disinheriting a spouse. Spousal rights are protected in common-law states under spousal elective share statutes and in community-property states under community-property statutes.
Transferring title to property held in JTWROS.
Bequeathing all or most property to a charity when the decedent is survived by a spouse or children.
Avoiding probate.

If you are drafting your will without the assistance of an attorney, be sure to check to ensure the provisions that you include in the will are valid under the laws of your state of residence.

Dying Without a Will
If you die without a will, you are considered to have died intestate and the inheritance laws of the state in which you live will determine who gets your property. These laws vary among states.

There are many disadvantages to dying without a will, including:

You do not get to decide how your property is disposed of.
A judge may decide who will be the guardian of your children if their other parent or legal guardian does not survive you.
It may cost your heirs time and money by having to go through a lengthy probate process. This includes legal fees and court costs.
If you are in a non-traditional family situation, such as a same-sex or common-law marriage, it is possible that your partner will not be considered to be your family by the state and will be disinherited.

While a will cannot resolve all your estate planning needs, it can serve as an integral component of a sound estate plan when used with other estate planning tools. Our next section will discuss the types of wills you may wish to consider.

Estate Planning: Other Types Of Wills

Retirement

The Importance of Creating a Will

Creating a will is an essential part of financial planning.
Retirement

Estate Planning: 7 Things Everyone Should Do

Regardless of your age or whether you have a lot of money, there are seven things everyone should do to prepare their estate.
Managing Wealth

Getting Started On Your Estate Plan

With some preparation, you can save your heirs from paying a hefty estate tax. Here are some tips.
Retirement

Which estate transfer technique is right for you?

This article explains the difference between the two estate transfer methods — will vs trust — and the circumstances under which each can be used.
Retirement

The Importance of Will Preparation

Will preparation is a vital step in the estate planning process for determining what happens to your assets after you pass away.
Retirement

Estate Planning for Beginners, Part One

Where do you start with estate planning? Here's a helpful outline to make sure your assets go where you want them to in the event of your death.
Financial Advisor

Why Estate Planning Is Easier Than You Think

When done properly, estate planning ensures that your beneficiaries receive your assets in a way that is controlled by you. Here is how to do it right.
Retirement

Estate Planning: Uncomfortable Now, Peace of Mind Later

Estate planning is not a fun topic to talk about, but doing it while you are still able will give you peace of mind so you can enjoy your life.
Retirement

Estate Planning Checklist for Young Families

Here is an estate planning checklist to use to make sure your wishes regarding your children and assets are documented and followed.