DO I NEED A WILL?
- Not everyone may need a Will. Who may NOT need one:
- People with very small estates may not benefit from a Will for purposes of property distribution.
- People with assets that only allow for beneficiary designation.
- People who do NOT want to have court supervision over the distribution of the estate may not get what they want from a will.
On the other hand, most everyone else probably would benefit from a Will at a minimum. An individual should update his or her Will after every major life change. Even in circumstances where there may or may not be many assets, a Will gives guidance to the ones you leave behind and that, in itself, is really worth a lot!
WHAT TYPES OF WILLS ARE THERE?
There are several unique types of Wills but not all of them are permissible or acceptable in every state:
- The Will & Testament, is a legal declaration by which a person, the “Testator” [making the Testament], names one or more persons to manage his or her estate and provides for the transfer of his or her property at death. It is so named because, technically, a “Will” was historically limited to real property while “testament” applied only to dispositions of personal property (hence the “Last Will & Testament”), though this distinction is seldom observed today. A Will may also create a testamentary trust [see below, item 7] that is effective only after the death of the Testator.
- The rare Oral Will, also known as a noncupative Will, is spoken, rather than written. Few states recognize this type of Will except in emergency situations because of the possibility of fraud or misunderstanding. Generally, the only recognized oral Wills are those made by a soldier on active war duty, a sailor at sea or a person in immediate danger of death who does not have time to prepare a written Will and have it properly executed.
- The Holographic Will is written in the hand of the Testator, in many jurisdictions, the signature and the material terms of the holographic Will must be in the handwriting of the Testator.
- Joint Wills made by two or more parties, typically spouses though, that make similar or identical provisions in favor of each other.
- The Living Will which is not a typical will at all. It is NOT used to distribute assets but instead is used to relate the specific healthcare wishes of the owner in the event that the person cannot express himself or herself for continued or discontinued treatment. It contains specific instructions to be followed by a doctor or hospital in relation to permissible healthcare options. In California, it is also currently called an “Advance Directive“. See that tab on the left of this screen for more on this critical topic.
- The Simple Will allows for the allocation of Testator’s possessions if the estate is straightforward and uncomplicated. Different laws apply in different states to this kind of Will and the distribution of assets.
- The Testamentary Trust Will actually sets up a Trust for part or all of the assets of the estate and the Trust can be for the heirs or beneficiaries of the Trustor. The assets are transferred to the Trust and the beneficiaries named in the Trust then eventually reap the rewards of the Trust. A Will can contain multiple Trusts and a Trustee is assigned to manage and oversee the execution of the Trust or Trusts. This Trust can be used to provide for the care of a disabled loved one or a child.
- The Pour-Over Will is used with a Living Trust which the grantor creates to transfer control of part or all of his or her assets to a Trustee for administration while the grantor is still alive. Upon the death of the grantor, any assets not in the Trust will be caught in the “safety net” of the Pour-Over Will and be put into the Trust after the fact. It essentially, pours over the assets into the Trust and is an important tool to be used with a Trust.
- The Internet Will should be called a “won’t” and not a “will”. These are mass marketed forms you can find on the Internet that I won’t name by name. They purport to be lawful in your state and amount to a fill in the blank type will. I have seen some and the ones I have read do not comply with California’s requirements under the Probate Code. I just had a case where a 90 year old man thought he would save money and do this and he did it wrong and because he didn’t understand what he was reading and doing, disinherited the child he raised from infancy in his second marriage. It is almost certain to create litigation.
WHAT MAKES A WILL VALID?
Even though each state has its own specific conditions and regulations, there are some general requirements for the creation of a Will:
General requirements for a Will to be legal include:
- The individual must be at least 18 years old;
- An emancipated minor can make a legal Will;
- The person must have a clear understanding of what a Will is;
- The person must be of sound mind and memory;
- The Will must be signed and dated;
- In most states, a certain number of witnesses must sign the Will [number of witnesses varies by state and witnesses cannot be beneficiaries or close relatives];
- Some states require that specific language be used;
- In some states, the Executor named must be a resident of that state.
WHAT ARE THE ADVANTAGES OF A WILL?
If the estate owner dies with a legal Will in place, he or she died “testate” and the estate passes as designated in the document. A Will empowers the Testator to control the rights of others over his or her property, assets, business interests, investments, financial resources and even their family after his or her death, within certain parameters. A Testator can set up a Trust in a Will to provide for minor children or for a disabled person, or some other reason, in what is sometimes known as a testamentary trust. It allows you as the Testator to name a Guardian for your minor children or for yourself in the event of incapacity and name Trustees of any testamentary trusts. It offers a “separate statement” which is the chance to make individual bequests of personal property [my bottle top collection to Mitch; my Donny Osmond record albums to Julie and so on]. It can be creatively used to craft the plan you want.
If one has no Will, one is “intestate” and the State of California has a “Will” it decided you will have instead. The probate court will appoint an Administrator to act on behalf of the estate. The Administrator’s duties are the same as the Executor’s duties in a testate case. The state will then determine the systematic distribution of the estate according to the laws of that state. If the deceased had no legal heirs, it will “escheat” to the state, meaning the state can claim the estate.
There is a process to go through called probate that is monitored by the Court so that what you want to happen, generally speaking, will happen. Because probate is required for a Will, let us look at the advantages of probate first:
- The Probate code requires notice to beneficiaries that allows one to object to a proposed action. A Trustee can just act without consulting the beneficiaries.
- “Family Allowance” takes priority over most creditors’ claims to support the family during administration of the estate. A “family allowance” is not given the same weight in a Trust.
- Court supervision can provide finality, cutting off future litigation of issues. After a notice period, if there are no objections, the Court’s ruling is final. If there are objections, the Court will consider them in making the ruling but the issue will be decided then. If there is a problem anticipated with a beneficiary, this may be a good way to deal with it. A third party makes a decision here and not a family member.
Now, what are the disadvantages of probate:
- Court administration is slow, taking at least 6 months;
- Probate is costly [filing fees, probate referee fees, executor and attorney’s fees…];
- It is a public proceeding so there is no privacy;
- You have to wait until LETTERS OF ADMINISTRATION are issued to have authority to act, unlike a Trustee who can act as soon as there is a Death Certificate.
WHAT ARE DISADVANTAGES OF A WILL?
The fact that it is a court supervised process can be a good or bad thing. Your private affairs are set out in schedules and in detail for any who cares to look. Any squabbles are also public when the court has to intervene. A Will often requires probate which can be time consuming, expensive and may not protect your loved ones quickly enough.
The cost of a Trust is up-front and usually more than a Will because it is more involved, complex and requires funding the Trust. The Will may seem a better route because they are much less expensive and in some cases can be done yourself, but the probate costs can way surpass the initial investment in the Trust. If your estate is significant and detailed, the Trust may provide you the flexibility you want. If not, or you are not ready yet, a Will may provide at least you some protection in the interim.
The reality is the cost of a Trust is substantially less than of a probate. A Trust may cost more up front but a probate can cost so much more. Consider a $750K estate which is made of up non-trust assets, and in California, depending on where you live, it could be just the family home. The probate fees would be $36,000. A Trust may run $3,500, or 10% of the cost of a probate. If the assets were $1,000,000, the cost would be $46,000 and the Trust would be about 8% of the cost of probate. People tend to think it costs so much more than a Will but you have to factor in the cause and effect of doing a Will over a Trust and you can see a Trust makes much more economical sense.
The chart below is helpful:
|PROBATE ESTATE VALUES||TOTAL ATTORNEY & EXECUTOR FEES|
WHAT DOES A WILL DO AT MY DEATH?
The Testator will have named an Executor in the Will. The Executor’s duties are to carry out the desires of the Testator as per the instructions in the Will. A Will requires the Executor to take inventory of the decedent’s possessions, business interests and assets so that they can be properly distributed among the beneficiaries and heirs. Testator’s assets will include any holdings in the Testator’s name, partnerships, joint ventures, Trusts or joint ownership arrangements. It includes real property and personal property. It does not include assets for which a beneficiary designation was made by contract. Examples might be an IRA or 401K plan or bank account.
Probate requires similar actions by the Executor or the Administrator. They must:
- Provide proof that the Will is valid and legal;
- Present an inventory of all assets owned by the estate;
- Notify all persons named in the Will;
- Notify all current creditors of the estate;
- Notify any agency or company with interests in the estate;
- Appraise all assets of the estate;
- Pay all debts, taxes and fees;
- Distribute all remaining assets as per the desires of the deceased;
- Follow the rules of the Will.
WHAT DOES A WILL DO IF I AM INCAPACITATED?
Here is one we all need to plan for, the possibility of our incapacity. A Will allows you to pre-nominate your Conservator, should one be needed. This, in conjunction with other planning documents, may allow the smooth administration of your assets during the time of your incapacity. It may be that a formal Conservatorship is required, depending on the nature of your incapacity, particularly if you have not executed any Durable Powers of Attorney prior to your incapacity. This brings you back to a probate proceeding in Court. This may be until you regain your capacity to act [like perhaps in the case of a serious injury] or until your death [like perhaps in the case of progressive dementia].
Without a Will or Trust, someone would have to be appointed to take care of your assets and who that is and how they did that may depend on whether the property is separate or community property. If you are married or in a registered domestic partnership, assets acquired by either you or your spouse or domestic partner are community property. I am not talking about income taxes because that is different for domestic partners than spouses under Federal law. Property you owned prior to marriage or that you got from an inheritance or gift is called separate property.
In California, community property may be managed by your spouse or registered domestic partner if s/he is competent. Separate property assets might be managed under a Durable Power of Attorney and could be subject to a Conservatorship proceeding in probate court. During the conservatorship process, a Judge decides whether you are competent or whether you can manage your finances or are able to resist undue influence or fraud. If it decides you cannot, a Conservator is appointed in a public record. The person appointed may or may not be the person you would want to have access to your assets and may be the last person you would have chosen!
WHO DO I PICK AS EXECUTOR OF MY WILL?
The job of Executor is a big job, so the person you name needs to be willing to do it. This is a critical choice and must be someone whom you totally trust to carry out your stated wishes. They are over-seen by the Courts on a lot of what they do but assets can disappear or not be accounted for. Favoritism can strike as can self-interest. While an Executor is entitled to a fee under the Probate Code from the assets of the estate, the Executor who is the one doing all the scrubbing and hauling and cleaning and work, may start to feel entitled to more than is in the Will. The Executor’s fee is supposed to cover the work done, not the taking of more of the personal possessions or whatever.
The choice could be of anyone you fully trust and does not have to be a family member or oldest child. Indeed, you may feel that your family members lack the time, skill, ability or willingness to manage your estate and theirs. You may have to consider the family dynamic of choosing one child over others and what that might entail. You might think multiple co-executors is a good idea but it is usually not. You may choose a friend and later have a falling out or lose trust or contact with that person. This is a very important choice and, should facts change, you may need to amend your Will to change this person. Whomever you choose, consider this very carefully first. You may also want to discuss it with your chosen potential Executor. They may have opinions you should know prior to selecting them.
CAN I DRAFT THIS MYSELF?
There is no legal requirement that a Will be drawn up by an attorney. Any person over the age of majority and sound mind [having appropriate mental capacity] can draft his or her own will, with or without the aid of an attorney. Some jurisdictions recognize a Holographic Will, made out entirely in the testator’s own handwriting or in some modern formulations, with material provisions in the Testator’s handwriting. The distinctive feature of a holographic will is that it is handwritten by the Testator and often that it need not be witnessed.
There is a modern trend for downloading a form Will from the Internet and doing that to save money or to do it yourself. The form sellers boast of a Will for $99 or something like that. What you are buying is a blank form on a few sheets of paper and nothing more. I have seen some of those and they do not comply with California law though I am sure they said they did on the website. They are litigation waiting to happen. While a fill in the blank style seems easy enough, if you do not understand what you are doing, it may well end up you do it wrong. These are the pitfalls into which home-made wills can fall. The person who makes a Will is not around to explain it or correct any technical deficiency or error in expression when it comes into effect on that person’s death and so there is no room for mistake. You are betting everything on your doing it right.
It is better to have a Will than to not have one, certainly. Whether it is better to have a Will alone or a Will and a Trust depends on your personal circumstances. Give the entire estate planning process a lot of thought before you act. It is not an impulsive thing to do. Do not let yourself be pressured by others to do what they want you to do. You can make your own choices.
Take steps to protect your estate now. When you have given this considerable thought and you are ready, please give me a call. I am here to help.