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Source: Flickr user Ken Mayer.
It may be an unpleasant task to think about your own mortality, but the fact is, writing a will is one of the smartest financial planning activities you can do. Given this, we asked three of our contributors to discuss some important things to know before writing a will. Here's what they had to say:
Dan Caplinger:An often overlooked element of writing a will is understanding that it doesn't actually cover all of your assets.
If you own property in accounts that have beneficiary designations, such as IRAs, 401(k)s, and life insurance policies, then the people you designate as beneficiaries of those accounts will inherit the proceeds, regardless of what your will says. Similarly, if you own property in joint tenancy with rights of survivorship, then your joint tenant automatically takes full possession of the property at your death, and pay-on-death bank accounts give the surviving account holder the rights to withdraw the entire amount after you die. Property that you hold within a trust is also usually handled outside the probate process, with distributions made according to the trust's terms rather than what any will says.
As a result, it's imperative when you're writing a will to make sure your beneficiary designations are consistent with its provisions. Moreover, if you decide to make changes to an existing will, you'll want to review those beneficiary designations to see if similar changes are warranted with those accounts as well. Otherwise, all of the effort you go to in order to update your estate planning could result in huge gaps that thwart your plans for where you wanted your assets to go following your death.
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Matt Frankel: One decision when writing your will is deciding who to name as the will's executor -- the person responsible for wrapping up your affairs and ensuring the will is carried out as you intended. This is an important decision, since the executor of a will is responsible for a number of important tasks, including:
- Distributing assets as directed by the will.
- Paying bills and taxes on behalf of the estate.
- Appearing at legal proceedings for the estate.
- Maintaining property until the estate settles.
So, because an executor has these responsibilities, it is important you choose the right person for the job. Many people choose their spouse or an adult child, but you can name someone else if you'd like, such as a trusted friend. Or, if you have a particularly complex financial situation, it may be best to name an attorney as executor. You also have the option of naming joint executors, as well as alternates in case the executor you choose refuses the job -- as being an executor can be quite a burden.
When choosing an executor, keep a few things in mind. First, it should be someone you trust to make the right decisions, and who has the sense to ask for help from a professional when they need it. Be aware that naming several of your children as co-executors could lead to arguments. In short, your executor doesn't need to be a financial expert, but does need to be someone you trust with a good business sense, and who will avoid potential conflicts.
Todd Campbell: It's great that you've made the decision to write a will, but you'll want to take special care in drafting it if you have young children.
Children are often ill-equipped to handle the responsibility associated with inheriting property, such as real estate or money, but more importantly, if a child inherits property when they're a minor, the probate court will appoint someone to serve as a property guardian for them if you don't.
Because of that, it makes sense to think carefully about whom you want managing your assets for your child when you're gone, particularly since a court-appointed guardian will hand over all the inherited property to the child when they turn 18, which might not be smart.
If your child is already over 18, it also makes sense to consider how ready they are to inherit your property. If you want to make sure your money is spent carefully, you might want to build in a tiered pay-out schedule that will dole out assets after the child has reached specific ages instead of all at once.
The article 3 Things You Should Know Before Writing Your Will originally appeared on Fool.com.
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