Although studies show that most people believe having a will is important, the sad truth is that less than half have one.
Preparing for the end of life is one of those things you know you should do–but according to a recent study, most American adults haven’t taken the time to get their end-of-life documents and plans in order.
60% of Middle-Aged Americans Do Not Have a Will
Older adults lead the pack in getting a will or living trust in order, but it’s important for younger people to have wills too, especially if they have children to ensure they’ll be cared for by the people the parents want as guardians in the event of their death. The same study shows that 78% of millennials (ages 18-36) and 64% of Gen Xers (ages 37-52) don’t have wills.
Understanding the law of wills, trusts, and probate are topics none of us really want to deal with, yet it’s a vital aspect of financial management and the long-term security of our loved ones. Experts agree that wills are important for all adults, even those without considerable assets, but there are many misconceptions about how wills and other estate planning document work. Don’t let unfamiliarity prevent you from properly planning your estate. Here are some frequently asked questions to better acquaint you with the process.
1. Do you need a minimum amount of assets to create a last will?
No. You can create a last will whether you have assets worth $10 or $10 million. Remember though, there are tax implications on the distribution of those assets. It’s for this reason you need to understand how inheritance will be taxed as you make your end-of-life planning decisions. For large or complicated estates, we recommend consulting with an estate planning professional.
Most estates don’t take years to resolve. The only delay is a state law mandated period that gives creditors time to file claims. After the waiting period is over, the estate can be closed as soon as all assets have been gathered, and debts and taxes have been paid.
What causes an estate to be in probate for extended periods of time are when siblings can’t agree on how to divide a parent’s assets or a family member challenges the will, when an estate is so big that it owes federal or state estate tax, or when the estate continues to receive income after the death, as in the case of a celebrity like Prince.
2. What happens when a person with a last will passes away?
The deceased person’s assets are disposed of in accordance with their last will and state law.
3. How are assets distributed if a person dies without a last will?
The deceased person’s assets are passed through the courts for distribution according to the laws of the state–not necessarily according to the wishes of the deceased. Each state has its own laws–for example in California, all property acquired during a marriage passes completely to the spouse. Any property acquired before the marriage or was inherited is split between the spouse and children. If a person dies and doesn’t have a spouse, the estate is passed to the children equally. The state will generally attempt to find any living relative and pass the estate on to them. If there are no blood relatives, the estate will pass entirely to the state.
4. What’s the difference between a living trust, living will, and a last will?
A living trust is for financial affairs. Its’ similar to a traditional will in that it directs how your assets will be disposed after you die, but it also provides instructions if you become incapacitated before you die.
A living will is for medical affairs and used to provide healthcare instructions in advance, such as whether or not life support is desired. It lets medical personnel know the kind of life support treatment you would want in case of terminal illness or injury, in the event you can’t communicate your wishes.
A last will is different from a living will and used for entirely different purposes. It has no legal impact until after you’re dead and is used to dispose of assets after death. A will should name an executor who will inventory your estate, pay your obligations, and distribute the remaining assets amongst your beneficiaries.
5. What are the benefits of a living trust vs a last will?
A living trust keeps your estate private and is used to transfer property and assets to beneficiaries without going through the probate process. The benefit of a last will is mainly its simplicity–anyone can write a last will. The main drawback is that family members may have to wait months or years until your property goes through the court system for distribution. A last will can be used with a living trust to name guardians for minors and express final wishes that a living trust may not capture.
*This article was written by our financial partner, Balance.