Distributing assets according to the will
Preparing a Will
Start by organizing what you need: outline your objectives, inventory your assets, estimate your outstanding debts and prepare a list of family members and other beneficiaries. Use this information to carefully consider how you want to distribute your assets. Ask yourself lots of questions: Is it important to pass my property to my heirs in the most tax-efficient manner? Do I need to establish a trust to provide for my spouse or other beneficiaries? How much money will my grandchild need for college? Do I need to provide for a child who has a disability?
Taking inventory of the assets may be the key to making a will. Assets should be mentioned in your will. Any items not specifically mentioned may be addressed in a catchall clause of your will called a residuary clause, which generally states, "I give the remainder of my estate to ..." Without this clause, items not specifically mentioned will be distributed in accordance with state law.
Outstanding debts usually will be paid by your estate before your beneficiaries receive their shares. You may want to clear up debts that you know will be a problem, or make specific provisions for payment of those debts in your will.
Remember to be specific and clear when naming beneficiaries. For example, state the person's full name as well as his or her relationship to you (child, cousin, friend, etc.) so your executor will know exactly who you mean. Clarity will also help to prevent challenges to your will.
States require that you sign the will in front of witnesses-the number of witnesses varies by state. A witness should not be a beneficiary under the will. Only one copy should be signed.
Updating a Will
You'll probably need to update your will several times during the course of your life. For example, a change in marital status, the birth of a child or a move to a new state should all prompt a review of your will. You can update your will by amending it by way of a codicil or by drawing up a new one. Generally, people choose to issue a new will that supersedes the old document. Be sure to sign the new will and have it witnessed, then destroy the old one.
The property included in your will may be subject to taxation. In planning your will, take into account the following:
Federal estate taxes will generally be due if the net taxable estate is worth more than $1,000,000. This amount is scheduled to gradually increase from $1,000,000 in 2002 to $3,500,000 in 2009 so that it will eventually shield $3,500,000 in gift or estate transfers from tax per taxpayer. Estates in excess of the exempt amount can be taxed at a rate from 37% to 50% (the top percentage is scheduled to gradually decrease to 45% in 2009). Also, note that these estate tax changes are scheduled to be repealed in 2010. If not extended, the tax law will revert to the estate and gift tax provisions in affect 2001. Consult a tax or financial professional to determine a plan that is right for you and your family.
You may be able to minimize your estate tax by establishing a trust or giving gifts during your lifetime. You can also cover the cost of estate taxes by purchasing a life insurance policy intended to pay taxes. Talk to your lawyer and life insurance agent to find out more about how this works.
- State death or inheritance taxes
- Federal income taxes
- State income taxes
Where to Keep Your Will
Once your will is written, store it in a safe place that is accessible to others after your death. If you name a trust company as executor, it will hold your will in safekeeping. You can keep it in your safe deposit box, but be aware that some states will seal your safe deposit bax upon your death, so this may not always be the safest place to store your will. Make sure a close friend or relative knows where to find your will. If you had an attorney prepare your will, have him or her retain a copy with a note stating where the original can be found.
A Living Will
A living will is not a part of your will. It is a separate document that lets your family members know what type of care you do or don't want to receive should you become terminally ill or permanently unconscious. It becomes effective only when you cannot express your wishes yourself. If your state recognizes a power of attorney for health care, have one executed to authorize someone to act in accordance with your present intentions.
Discuss your wishes as reflected in your living will with family members, and be sure they have a signed copy.
The end of your life is something you probably don't want to dwell on, but thinking about what will happen to your loved ones and your assets and personal possessions is important. Making sure you've done all you can to make their lives easier will give you peace of mind. And once your will is drafted, you won't have to think about it again unless something significant in your life changes.