Takeaways
- A will is a legal document stating how you want your assets distributed to beneficiaries.
- A will ensures that your estate seamlessly transfers through the probate process.
- Beneficiaries of a will can include your spouse, children, family, trusts, and endowments.
- Parents can dictate guardianship of their children in the event of a premature death.
- Personal assets and estates in a will could include investments, vacation houses, insurance policy benefits, heirlooms, and businesses.
What Is a Will?
A last will and testament, often called a "will," is a legal document that outlines how an individual, known as the testator, wishes to distribute their assets upon death. This document ensures that the testator's wishes are fulfilled and provides peace of mind to the testator and their loved ones.
Depending on how you craft your will, you can divvy up your net worth – stocks, retirement savings, real estate holdings, and alternative investments – to beneficiaries, including your spouse, children, family members, friends, trusts, and philanthropies. Wills can also dictate funeral preferences and guardianship of minor children. A will is meant to streamline the probate process.
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How a Will Works
A will is a legally binding document that must comply with the specific laws of the testator's jurisdiction. As the testator, you appoint an executor responsible for carrying out the terms of the will. Most people choose a trusted attorney, financial advisor, or friend to act as the executor. The executor's duties typically include:
- Probate: The legal process of validating the will and transferring your assets to the designated beneficiaries.
- Asset Distribution: Distributing your assets to the beneficiaries named in the will is critical to executing the will. An estate can include all different types of assets.
- Paying Debts and Taxes: Another significant responsibility is settling any outstanding debts and taxes the estate owes. Settling debts could include paying off house mortgages, liens on land, or business debts.
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When to Set Up a Will
It is never too early to plan for your future, and most financial advisors urge clients to create a will as early as possible.
In reality, many life events nudge people to make a will. Here are several events that spur people to create a will finally:
- Marriage: A new marriage can affect the distribution of assets, especially if children are from a previous relationship. Dictating how the estate will be transferred and who will take custody of minor children often serves as a catalyst. (Read about How Much the Average Wedding Costs).
- Birth of a Child: The birth of a child can necessitate updates to a will to ensure that the child is provided for in the event of an untimely death. New parents are keen on making sure their child is appropriately cared for.
- Increase in Net Worth: As your net worth grows, it becomes increasingly important to have a will to ensure that your assets are distributed according to your wishes. (Try our plug-and-play Net Worth Calculator).
- Inheritance: If you receive an unexpected inheritance, creating a will around how your newfound net worth should be distributed is a smart money move.
- Divorce: Divorce can significantly impact your net worth, estate holdings, and the distribution of marital assets.
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What Goes into a Will?
Certain aspects of your will may depend on your current life situation. The good news is that wills can evolve as your needs change. Remember that an estate planning professional can help you understand your needs and how to navigate creating a will. A typical will includes the following components:
- Appointment of Executor: As the testator, you designate an executor to oversee the probate process and distribute assets. The executor should be trustworthy and capable, such as a family member, friend, or attorney.
- Designation of Beneficiaries: You specify individuals, nonprofits, or endowments who will inherit your assets. These beneficiaries can be your family members, friends, charities, or trusts. It's essential to be clear and specific when designating beneficiaries to avoid confusion and potential disputes.
- Distribution of Assets: You should outline how your assets will be distributed among your beneficiaries. Distributing assets can involve specific bequests, such as leaving a particular item to a specific person or dividing the estate into equal shares. It is smart to consider the tax implications of different distribution strategies and consult with a tax advisor to optimize your distributions. (Read about the 7 Types of Asset Classes).
- Guardianship: If you have children, you can appoint guardians to care for them. Assigning guardianship is crucial to ensure your children are well-cared for and protected. Carefully consider the qualifications and suitability of who you want to be their guardians.
- Funeral and Burial Instructions: You can also express your wishes regarding funeral arrangements, burial or cremation, and memorial services. Preprepared funeral plans can help alleviate the burden on loved ones during difficult times and ensure your final wishes are honored.
- Charitable Giving: With a will, you can donate to organizations you care about. These donations can be a significant part of their estate plan and provide tax benefits.
- Contingent Planning: It's important to consider potential future events that may impact your estate plan. For example, include provisions for the birth of additional children. A well-drafted will should be flexible enough to navigate changing circumstances.
By carefully considering the variables of a will and consulting with an estate planning attorney, you can create a comprehensive will that protects your estate and ensures your wishes are carried out.
Pros of a Will
- Peace of Mind: Knowing that your wishes will be carried out can provide you and your family peace of mind.
- Avoids Intestacy: Intestacy occurs when a person dies without a valid will. In such cases, state laws determine how assets are distributed, which may not align with the deceased person's wishes. [1]
- Minimizes Family Disputes: A well-drafted will can help prevent family disputes over inheritance.
- Tax Planning: A will can be used to implement tax-efficient estate planning strategies.
Cons of a Will
- Probate Process: Probate can be time-consuming and costly, especially if the estate is complex.
- Public Record: Wills become public records once submitted to probate, which may not be desirable for some individuals. You can place your assets in a living trust to avoid having your will become a public record.[2]
- Contesting a Will: Wills can be contested in court, leading to legal fees and emotional distress.
To mitigate the potential drawbacks of a will, consider consulting with an estate planning attorney. They can help you create a comprehensive estate plan that addresses your specific needs and protects your assets.
Smart Summary
A will is a document declaring how you would like your assets distributed after you die. Wills are extremely helpful in managing how property should be divided among surviving spouses, children, or family members. As defined in the document, a will makes its way through probate to seamlessly transfer real estate, investments, and heirlooms to beneficiaries. Financial advisors and financial planners can walk you through how to think about setting up your will.
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(1) Cornell Law School. Intestacy. Last Accessed January 12, 2025.
(2) American Bar Association. The Probate Process. Last Accessed January 12, 2025.
