The percentage of Americans reaching retirement age is set to grow significantly. According to the Urban Institute, in 2000, 12.4% of Americans fell into the 65-and-over category. That figure rose to 16.3% in 2020, and it is projected to reach 20.4% by 2040.
As the country grows older, more people will start the process of estate planning. The first step in this effort is to create a will. The American Bar Association explains that a will “provides for the distribution of certain property owned by you at the time of your death, and generally, you may dispose of such property in any manner you choose.”
This plan can give you peace of mind by knowing the distribution of assets happens exactly according to your wishes. You may start considering a will as you reach age 65, but you can (and often should) start the process much earlier. Here is a closer look at who should write a will, when they should create it, and what it should include.
In most states, you can create a will when you reach 18 years of age (known as the “age of majority”). That being said, not everyone makes a will once they reach this age. Instead, you’ll want to make this decision once you have assets you’d like to pass on to beneficiaries.
For example, when you get married, you will want to be certain that your spouse gets your possessions if you die. You may also want to lay out who gets your assets after you start a new job, come into a great deal of money, or purchase real estate.
You also need to create or update a will and purchase life insurance when you have children. Both these steps will ensure that your assets get used to caring for your family if you pass away unexpectedly.
You need to make sure your will contains the necessary details and lays out your wishes. If anything is left open to interpretation, it could lead to confusion or conflict among your beneficiaries.
If a will is ambiguous, it may end up in probate court where a judge will ultimately decide how the assets in question get distributed. There are specific points you need to address and certain questions you should answer when creating a will.
Most people choose a spouse, children, grandchildren, siblings, or other relatives as their heirs. However, there are no laws that state that beneficiaries must be blood relatives. You can choose friends or other loved ones or leave some of your assets to a charity or organization.
You should clearly name all your beneficiaries individually. For example, you should list your children by their full legal names instead of referring to them collectively as “my children.” You can do this even if you plan to divide the assets equally. It will take any confusion or room for dispute out of the equation.
Finally, you should select contingent beneficiaries who will inherit a share of the estate if the primary beneficiary passes away before you do.
You can organize your assets to make the distribution of your estate easier.
The first step is to ensure you have all necessary documents, such as financial statements, account information, property deeds, investment portfolios, and any other necessary proof of ownership documents.
Finally, it could be necessary to record login data and other verification information for online accounts so that your executor can access them after your death.
These steps can make distribution easier, and they can also help you account for every asset that you have. Again, if you neglect to list an asset in your will, you risk having a probate court decide how to distribute the overlooked wealth.
If you have minor children, you need to select a guardian to care for them. There are a few things to consider when making this decision. If the child’s other parent is still alive and able to take full custody, they likely assume responsibility in the event of your death.
However, if they have a will, you should discuss guardianship with them, and if possible, both of you should name the same guardians in your respective wills to avoid any disputes.
You need to choose someone who you feel will be able to care for your minor children until they reach adulthood. You can consider things like their values, ability to support your children financially, age, and location.
Finally, you need to ask your chosen guardian if they will shoulder this responsibility before you add their name to your will. Even if they agree, you can consider nominating a secondary guardian to handle the duties if your first choice is unable to do so.
The executor is the other important person you need to name in your will. They are responsible for carrying out the wishes outlined in your will after your death. They find and organize your assets after you die and manage your estate until it gets distributed to your heirs.
An executor needs to be trustworthy enough that you feel confident they will carry out your wishes, even if they are under pressure from your heirs. Also, they need the time and willingness to handle the responsibilities. For instance, if you have property, they will need to care for it and handle any bills or taxes until your beneficiaries take possession.
Many people select a family member or close friend to act as an executor, but you can also choose a legal or financial representative if you want someone who is fully impartial.
Some people donate a portion of their estate to charities or organizations that they want to support. If you do this, you will need to clearly state your wishes in your will, including the name and address of the charity and identifying information, such as an EIN, to verify that the assets are going to the right place. Charities accept all types of donations, including vehicles, property, stocks, and cash.
Recipients of life insurance benefits and inheritance are both known as “beneficiaries.” However, these two beneficiaries are different.
A life insurance policy pays your beneficiaries when you pass away. This money could be used to cover your funeral expenses and replace the financial support you provided while living.
You choose your beneficiaries when applying for life insurance. These people are usually those who you directly support, such as your spouse, children, or other dependents. You can shop for a life insurance policy based on the type of benefits these dependants need.
Your life insurance beneficiaries have no right to claim any of your estate’s assets unless they are also named in your will. Likewise, the beneficiaries of your will have no right to benefits paid out by your life insurance policy.