It’s the New Year, and you’re focused on at least attempting to honor all those resolutions you set just a few days ago. Things like losing weight, joining a gym, saving more money and finally taking that trip to some exotic location probably top the list.
Assuming you’ve already purchased life insurance to protect your family’s finances, there’s one more item that should be added to your “Must Do in 2016” list, and it’s creating a will.
“Do I really need a will?” is one of the most common questions I get asked as a financial planner. I argue that most everyone should have a will, but it’s especially necessary if you have kids, significant assets and are married.
Whether you truly understand what a will does, we all know that it’s an important document that includes really important decisions. The reality of life is that you can’t predict when something might happen to you and since you’ve spent your entire life collecting things and building assets, it doesn’t make sense that you wouldn’t have a will in place to determine how they should be handled.
What is a Will?
A will is simply a legally binding document that becomes your voice when you die. It provides direction for how you want all your possessions and assets to be managed.
A will can be created with the help of an attorney, or can be done easily online as well with programs like LegalZoom for a fraction of the price. However, this isn’t like trying to find that sweater you want on a 60% off sale. You want to make sure your will is done properly and will suit your needs, therefore while price matters, cheap doesn’t always win in this situation.
How do you decide which route to go: online versus attorney? It’s really a matter of your own preference. An attorney will cost more, but is a professional who can ask you the key questions that you need to think about in regards to your will. It’s a more customized service. If you use an online will service you will pay a lower fee and walk through prompts online to input your assets and details. Most online services will create the will and have an in-house attorney double check it before you get the final copy.
Questions You Need to Answer
Before you meet with your attorney or jump online, there are a few questions that you need to be prepared to answer in order to complete your will. I say prepared to answer because you breach some tedious subjects (like where all your belongings should go) and some difficult choices (like who should care for your kids if both you and your spouse were to die). Preparing in advance for these questions makes writing a will a lot easier and keeps you from being put on the spot and making a decision to just get the process over with.
1. What stuff will you leave?
You might hear people talk about an “estate” when they mention a will, and yes, no matter how much money you have or don’t have, you have an estate.
An estate is simply all those items that you cherish and that have value. While it can be big things like owning an island in the South Pacific, it can also be little things like a photo collection, cherished jewelry, cookbooks, etc. It’s anything that you deem valuable as well as those items that do have actual value like cars, homes, bank accounts, etc.
You will want to make a list of all of those items that matter to you. Do a walkthrough in your house and make a list of everything you can think of.
2. Who Gets What?
Now that you have a list of all of your property, it’s time to figure out who gets what. This is a really important question to answer, and you should take some time to think it through. You will need to create a list with each person’s name, address, and date of birth corresponding with the asset that you wish to leave to them. It may seem a bit tedious if you have a lot of stuff that you want to give to a lot of people, but this is the only way to guarantee your wishes are honored.
You can also list items and actual money that you wish to go to charities or leave to relatives. Let’s say you want to make sure the American Cancer Society receives a $5,000 donation and that your sister receives $10,000 to pay off her student loans. You would want to write that all in your will and give clear direction for those reading the will to make sure your requests are understood.
Here are a couple of exceptions to know about that don’t need to be addressed in your will. Any asset where you’ve named a beneficiary, for example, life insurance, stocks/bonds, 401(k), IRA, ROTH, pension plan, etc. will pass directly to whomever you’ve named without a will. (BTW, this might be a great time to make sure you double check that the person you have named as a beneficiary is still the person that you wish to receive the asset). Also, any property that is held in joint tenancy or is community property, like a home you own, will pass directly as well, and any property that is in a living trust.
3. Who’s In Charge?
Every will needs an executor. This is the person who will handle your estate, pay your bills and deal with any debt collectors. Make sure whomever you choose is someone that you trust, respect and know will handle your requests with the utmost care and concern. For instance, my husband is my executor and I’ve named a lifelong friend as the co-executor, meaning if something happened to my husband at the same time as me, my friend would step in and serve as executor.
If you don’t have any close family members that you want to name, it’s perfectly acceptable to name an attorney, CPA or any other trusted advisor. The key is that you need to make sure this person knows they are your executor before something happens to you. While most people like surprise birthday parties, finding out that you are a surprise executor might not be as enjoyable.
4. Got Kids?
If you have kids, you will also need to name a guardian if they are under the age of 18. Yes, this decision alone can take you weeks and months to figure out, so it’s something to start thinking about right away instead of racking your brain at the computer when you decide to finally create that will online.
Before choosing your guardian, make sure you’ve considered:
- Do they live close to where you live?
- What are their finances like (aka can they reasonably financially support your child)?
- Are they older than you (what happens if something happens to them)?
- Whose parenting style, values, and religious beliefs most closely match your own?
- Whom does your child feel comfortable with already?
- Does the person you’re considering have other children? If so, would your child fit in or get lost in the shuffle?
While, of course, the best parent for your child is you, make sure the decision of who would care for your child if you died is left up to you. The best way to do that: with a will.
Ready, Set, Get A Will!
The best part about a will is that once it’s created it can be, and should regularly be updated. Any time you enter a new life stage like marriage, divorce, having children, starting a business, etc. you should update your will to make sure it reflects your current situation.
Even if you haven’t embarked on a major life change but your will has gone a few years without being looked at, make sure you take another read through. The most common mistake I run into as a financial planner is that my clients haven’t bothered to update their will in years. For example, if you leave your prized camera collection to your best friend and in three years, he’s no longer your friend, you can amend your will so it goes to me (just kidding).
If you don’t have a will, like many of us, there’s no better time than the start of a New Year to get one in place. As the adage says, “Better late than never.” There’s nothing better than being able to lay your head down on your comfy pillow at night knowing that all your loved ones and favorite things will be taken care of.
**Disclaimer** I am not an attorney and can’t dispense legal advice. It is in your best interest to consult with your attorney before completing your will for your financial situation. My goal is to get you thinking about your will and have you fully prepared to pull one together.
Shannah is a CERTIFIED FINANCIAL PLANNER™ professional and is a millennial money financial strategist. She runs the blog Your Millennial Money, and is host of the Millennial Money iTunes podcast. Her husband Jeff is a travel journalist, but when they aren’t traveling she loves to challenge herself in the kitchen by creating a culinary masterpiece worthy of Food Network fame (she can make a mean risotto).
