What are Wills? Why do you need one? What is the difference is between the various types? It’s understandable why this topic might seem intimidating or unnecessary, especially since it’s tied to death, which most people don’t like to think about. But the truth is, no matter how young or healthy you are, if you're over 18 and breathing, you need a Will. It’s a part of being an adult, just like paying for insurance. Think about it: you might not love paying for life insurance or car insurance, but you do it to protect yourself and your loved ones. A Will is no different.
None of us are guaranteed tomorrow. Imagine this: if something were tohappen to you unexpectedly, your Will is your final chance to leave a meaningful message to your family – a last goodbye, even when you’re no longer around.
But I get it – Wills can seem like a lot of legal jargon. So, let’s break it down into simple terms. In this article, we'll explain the different types of Wills (like a Last Will vs. a Living Trust), as well as other important documents that make up a solid “Estate Plan.”
Part 1: The Last Will & Testament
When you think of a Will, you might picture a dramatic scene from a movielike Knives Out, where a rich family gathers to find out who gets what.While that’s not far off, there’s much more to a Will than just dividing upmoney.
A Last Will & Testament lets you do several important things:
- Name Guardians for minor children (and even set up a Testamentary Trust to manage their inheritance).
- Assign specific gifts of cash, bank accounts, or personal property to individuals or organizations.
- Decide how your estate is distributed, no matter how big or small it may be.
Let’s break it down further:
- Guardians: This is the person you trust to raise your children if something happens to you. Who do you want to care for them? Who will instill your values and love them like you do?
- Testamentary Trust: This is where your estate is set aside to provide for your children, managed by the Personal Representative/Executor of your Will. This person ensures that your kids’ needs are met financially until they reach the age you specify to inherit their share.
- Specific Gifts: These are cash amounts, bank accounts, or even specific items like jewelry, that you want to leave to particular people or charities. If you want to leave $10,000 to your best friend, or all the money in a bank account to a cause you care about, your Will is where to include this.
- Personal Property Memorandum: This is an addendum to your Will, where you can list specific personal items like a watch, a vehicle, or a favorite couch. It’s not part of the main Will, so you don’t need to re-notarize your entire Will if you want to change or add to the list.
- Residual Estate: Everything else that’s not specifically named – like your house, investments, or other assets – will fall into the Residual Estate. You’ll decide who gets a portion, often divided among your children. If one child passes before you, their portion typically goes to their kids (your grandchildren). If you don’t have children, you’ll name who gets your estate.
One important thing to note: life insurance policies, retirement accounts(IRAs, 401(k)s), and other assets often have named beneficiaries. These accounts typically pass directly to the beneficiaries without going through your Will. However, you can name your estate as the beneficiary, and then it will pass according to the terms of your Will. Be sure to consult with your financial advisor to figure out the best option for your situation.
What About My Pet?
We love our pets like family, but legally, they’re considered “personal property.” You don’t need a special legal document to designate a pet guardian.You can simply list your pet’s new owner in your Personal Property Memorandum along with your other belongings. If you want to include a special letter or certificate, go ahead, but it’s not necessary.
Living Trusts: A More Complex Option
A Living Trust is another legal document that allows you to manage and distribute your assets after death, but it works a bit differently than a Will.A key difference is that a Living Trust can hold assets while you’re still alive, letting you retain control over them, and they don’t go through probateafter your death.
There are two types of Living Trusts:
- Revocable Living Trust: This type can be modified or canceled at any time, giving you full flexibility while you’re alive.
- Irrevocable Living Trust: Once set up, this type can’t be changed. It’s more permanent and offers additional benefits, like reducing estate taxes.
One major perk of a Living Trust is that it avoids probate, the legal process where the court oversees the distribution of your estate. With a LivingTrust, your assets are passed directly to your beneficiaries, bypassing the court process.
If you have significant assets or a complicated family situation, it’s highly recommended that you consult with an attorney to set up and fund aLiving Trust properly. Don’t skimp by using an online service – if you’ve built wealth, you’ll want professional guidance to protect it.
Joint Wills: Proceed with Caution
Some couples consider creating a Joint Will, but this option can be problematic. With a Joint Will, once one spouse passes, the surviving spouse can’t make changes to the Will, such as selling property, updating beneficiaries, or leaving assets to a new partner. If you think this might be right for you, it’s crucial to get advice from an attorney to make sure you’re making the best decision for your family.
Part 2: The Advance Directive and Health Care Power of Attorney
Life doesn’t always go according to plan. You might not be dead, but what if you’re incapacitated? What if you can’t make decisions for yourself? In these cases, an Advance Directive, Living Will, and Health Care Power ofAttorney (HCPOA) can step in.
- Advance Directive: This is a comprehensive document that includes your Living Will, Health Care Power of Attorney, HIPAA release, organ donation wishes, and burial instructions. It’s a single document that allows you to express your medical and end-of-life wishes ahead of time.
- Living Will: This specifies your wishes about life support and other medical interventions. If you’re unable to speak for yourself, your doctors and loved ones will know whether or not to keep you on life support.
- Health Care Power of Attorney (HCPOA): This names the person you trust to make medical decisions on your behalf. They can make decisions about your care, communicate with doctors, and ensure your wishes are carried out. It’s particularly important for young adults and parents with kids over 18, as once a child turns 18, parents no longer have automatic access to medical information without this document.
- Organ and Tissue Donation: If you’d like to donate organs or tissues, your Advance Directive is the place to specify that. You can also include any wishes about your burial, cremation, or other final arrangements.
Part 3: Durable Financial Power of Attorney (FPOA)
A Durable Financial Power of Attorney (FPOA) lets you name someone to manage your finances if you become incapacitated. Whether it’s paying bills, managing investments, or handling taxes, this document ensures someone can step in to take care of things when you can’t.
Unlike a regular Financial Power of Attorney, a Durable FPOA remains effective even if you’re incapacitated, so your finances are covered no matter what happens.
Summary
There’s a lot to consider when it comes to preparing for the future, but the most important takeaway is this: you need to take steps to protect yourself and your loved ones while you're still building your life. At Steward, we’re here to help you with the basics – to give you a starting point to get your estate in order. But once you’ve built significant wealth or have a complex family situation, it’s time to consult with an attorney.
If you're just getting started with your estate planning journey and just need to make sure your kiddos are spoken for, your healthcare wishes are known and you’ve identified who you want to receive your things, Steward is here to support you. But when you’re ready to take your planning to the next level, consult an attorney to make sure your estate is in the best hands.
