Estate planning is one of the most important things we do as financial advisors. It can also be the hardest because it involves thinking about what happens when you die.
It’s actually one of the financial planning tasks that I put off, even though I’m a planner and know how important it is. But I did do it eventually, because ultimately, estate planning and writing a will is something we do to protect our loved ones.
While the actual will is written by an attorney, it’s a big part of the conversation we have around planning your estate. As we go through the basics of writing a will, which I’ve summarized into five steps, I’m going to lean on a recent conversation I had with Mike Bennett at Helios Integrated Planning, who specializes in estate planning.
Step 1: Yes, you need a will
A will is a legal guide to what you want done with your possessions when you die. You might not think about this if you’re young or healthy, but having a will can go a long way in helping your loved ones.
“It’s the only place, in the state of California, where you can name the guardian of any minor children,” Bennett points out. “And that’s huge, for obvious reasons.”
Even if you’re in your 20’s with no children, explaining your last wishes could help your parents, siblings or significant other through what will already be a terrible time.
Step 2: Gather information
Creating a will means making a list of all of your assets: property, retirement, investment or bank accounts, and even smaller items like jewelry.
You also need to list out your liabilities, such as mortgages, auto loans, student loans or credit card debt, and even tax obligations. Your estate (a fancy way of talking about your net worth) is responsible for covering these when you die.
You also have to think about an executor. This person will be responsible for executing or carrying out your will, so you want to make sure it’s someone you trust to carry out your wishes. When you draft your will, you can determine which specific tasks you want to authorize the executor to handle.
Next, consider your beneficiaries. These are people who will receive your assets (or benefit from them). To avoid confusion and make the process easier, try to gather names, birthdates and Social Security numbers for these people.
If you have children or pets, consider who you would name as their guardian. Include an alternate choice as well, just in case. While you don’t technically need to obtain someone’s permission to name them as guardian, it’s a very good idea to make sure they’re willing and able to accept that responsibility.
Step 3: Lawyer up
Once you have all of this information compiled, a lawyer can help you construct a formal will. There are a number of online services that allow you to make your own will, but there is more room for error with this process.
Keep in mind that a will is a legal document, so it makes sense to bring in a lawyer to make sure you’re covered, and to help ensure your family won’t have to deal with surprises later on.
Step 4: Understand the process
Understanding what happens legally and financially after you die can help you better plan ahead.
When a person dies, the will is filed with a probate court. Each state has specific laws governing what happens when you probate — or prove the validity of the will — for an estate. The probate process generally includes locating and valuing the deceased’s assets, settling their liabilities, and distributing the remainder of the estate (net worth) to the named beneficiaries.
In California, probate is automatic for estates over $150,000. It can take several months, and it can also be very expensive. “A will does not avoid probate… it just tells the probate court what you want to have happen,” explains Bennett. As a result, having a will can make the process much easier on your family.
In addition to probate proceedings being potentially costly and time-consuming, they’re also part of the public record, which is something many people want to avoid.
Some assets are exempt from probate, and thus remain private. These include assets with named beneficiaries (ex: a retirement account), jointly held assets (ex: spousal accounts) or trusts, which is one reason trusts are so popular in estate planning.
Probate is also where problems can arise with a self-drafted will. If there are issues with how the will is notarized, or if it’s missing key language, it could be invalidated or trigger potentially complicated legal problems.
Step 5: Consider the bigger picture
Regardless of how you go about writing your will, it’s just one part of what should be a broader plan to help your loved ones when you die.
There’s also all of the non-probate assets — the ones with named beneficiaries like annuities or life insurance policies — that pass directly to the beneficiary and don’t need to be included in a will. We can work together to make sure the paperwork on these policies aligns with your wishes, and you can keep these documents separate from your will.
If you’re interested in taking things a step further than a will by creating a trust to further protect your assets, this is also something we can discuss going forward.
Listen to the full conversation with Mike Bennett of Helios Integrated Planning where we dive further into wills, trusts, power of attorney and more on the Minority Money Podcast.