By FPA member Richard Durso, CFP®

Last Updated: December 12, 2011

It may be a surprise to learn that even if you do not have a written will, your state of residence already has a plan in place for the disposition of your assets (which is called dying intestate). It is not always the case that your spouse will inherit your entire estate if you die without a will. State laws typically entail dividing the estate between the surviving spouse and living children. Having a will in place gives you the means to decide who receives what share of your assets, rather than the courts deciding. Certain assets that pass to heirs according to your will include: individually registered accounts, personal property (jewelry, grandfather clocks, etc.), tenants in common accounts, community property accounts, real estate owned in other states, and other accounts in which the named beneficiary is your estate.

If you have a very simple estate, then you could consider setting up your own will. Typically this would only be acceptable in certain situations (no minor children, not a homeowner, not much personal property or investments). You can go online to sites such as legalzoom.com or Quicken Will Maker to set up your own will. Ensure that you have two or three witnesses and get it notarized.

A will is particularly important if you have minor children because it enables you to name the guardians. Without a will, the court will decide. Also, if specific instructions are absent, your children may inherit a large lump sum when they are 18 or 21 (depending on your state), which may be contrary to your wishes. A will is essential for the following reasons: complex financial situations, large estates, business owners, charitable or legacy desires, if you feel that someone may try to contest your will, or if you own property in multiple states. 

Consider the following questions:

• Upon your death, what are your goals for distributing your estate?  
• Would you like any of your assets to pass to non-family members or to leave specific bequests?  
• What if that person predeceases you, then how would you prefer the assets to pass?  
• Would you prefer to minimize estate taxes for heirs?  

Wills can be as simple as leaving everything to your spouse and then to your children. If you want to limit the chances of an heir going on a spending spree and include certain controls for an inheritance, a trust would be appropriate. A trust can be set up to provide monthly income and allow for other distributions for medical and education reasons. Certain trusts can reduce your estate tax liability. (In 2011, the first five million of one’s estate is excluded from federal estate tax. Your state may have additional death or inheritance taxes). 

In your will, be sure to name a trustworthy person as executor to manage your estate. It is recommended to name someone who won’t squander the estate! It is important to name successor executors in the event of the named executor being unable or unwilling to fulfill the duties. If applicable, successor Trustees and successor Guardians should be named.

Certain assets pass to heirs outside of the will and via beneficiary designations (unless you specifically name your estate as beneficiary). Such accounts include IRAs (individual retirement accounts), Roth IRAs, annuities, 401(k) plans and other employer sponsored retirement plans, certain pension benefits, TOD (transfer on death) accounts, life insurance, joint account with right of survivorship, and certain trust accounts. 

Once you have determined your estate goals, an estate attorney can create the appropriate documents and work with a financial planner to coordinate your will, account titling, and beneficiary designations to be sure that everything is in sync with your estate goals. Be sure to update your will if you have a major life event such as a birth of a child, a death, a divorce, other life changing event, or if your wishes change.

FPA member Richard Durso, CFP®, is a Financial Planner at RTD Financial Advisors, Inc.