August is National “Make a Will” Month; it’s a great annual reminder to update your will if need be and create a will if you don’t already have one. Having a proper will can make the difference between a smooth transfer of assets and a probate nightmare.
What Is a Will?
A will, or a Last Will and Testament, is a legal document that outlines your intention for the distribution of your assets after your death. It is an integral part of a comprehensive estate plan that helps your loved ones avoid legal and financial hurdles and helps them know what to do with your assets. These explicit instructions are essential and can help everyone avoid a lot of headaches.
Wills vs Trusts
When you’re researching estate planning documents, you have likely come across both wills and trusts. While both documents can help dictate what you want to do with your assets when you’re gone, there is one main difference.
The primary difference between a will and a trust is that a trust takes effect as soon as it’s created and signed, while a will does so only after you pass away. There are also two different types of trusts to consider: irrevocable and revocable.
- Irrevocable trusts are trusts that can’t be changed or canceled after they have been signed.
- Revocable trusts can be changed, and the grantor has the right to change the terms or even end the trust.
Some other differences between wills and trusts are that a will requires probate to transfer items to beneficiaries, but trusts can avoid probate. In addition, wills are public record and trusts can remain private. Because a trust takes effect right when it’s created, it can be used if you become incapacitated and unable to make decisions independently.
Do You Need a Will?
We face so many financial obligations every day, so should creating a will be at the top of your list? Most financial experts say yes, you need a will. Even if you don’t have substantial assets to transfer, a will can still help your family feel more confident about your wishes. In addition to making the transfer of assets easier, here are a few benefits of having a will:
- It allows you to distribute your property and protect your loved ones after you pass away.
- It can provide peace of mind to you and your family.
- You can plan for those in your care (e.g. naming a legal guardian for your children or pets).
- It may prevent family conflict.
- It can eliminate confusion over assets.
- It can ensure that your assets go to the people you want to have them.
- It can help you build a lasting legacy.
- You can use your will to benefit charity.
These are just a few of the many benefits of having a will. Moreover, the downsides of not having a will can be substantial. When someone dies without a will, who inherits what is a complicated matter determined by each state’s respective laws but usually involves going through probate court. In addition to having very little control over how assets are distributed after dying, failing to prepare a will can often put someone’s family through a long and contentious process determining how their assets should be allocated, needlessly wasting time, money, and heartache.
With that in mind, let’s look at how to create a will.
How to Create a Will
Creating a will can be a straightforward process, or it can involve the help of attorneys and financial advisors. The process will also depend on where you live because every state has different requirements for creating a will.
Generally, the first step in creating a will is to determine what you want to include. You should include instructions for passing along your assets after your death, including ownership and other instructions. You may consider working with an attorney to ensure that your will contains everything it needs.
Next, you will likely sign your will in front of two witnesses, and these two witnesses will also sign your will. Some states require a self-proving affidavit that you sign in front of a notary, other states require your will to be notarized, and some states don’t require any special self-proving documentation as long as you sign and witness your will correctly.
Whether you have $10 worth of assets or $10 million, creating a will is a good idea to give your family more guidance after you pass. Whether you need to give your will a once-over or you don’t have one yet, our Advisors are more than happy to help you build the comprehensive financial plan that works best for you.
| Mike Hengehold, CPA/PFS MST RICP®
Mike is the Founder and President of HCM Wealth Advisors. Over the last 30 years, he’s provided financial planning guidance to a myriad of families to help them realize their financial dreams. Mike is an avid homebrewer and animal lover, and when he’s not at work you can often find him on the golf course working on his short game.