So You Don't Think You Need a Will?
Updated March 5, 2010
- A will is a vital component of a good estate plan.
- We'll explore the consequences of not having a will, wills versus living trusts, and how to get started writing a will.
- Helpful information for anyone who doesn't have a will.
If you're young, healthy and busy building up your assets, an estate plan to distribute those assets might be the furthest thing from your mind. If you're older, you might postpone estate planning because of uncertainty about future changes to estate tax law, or simply because death is an unpleasant subject.
But whatever your age and life circumstances, and no matter what the size of your estate might be, you're doing yourself and your loved ones a great disservice if you don't prepare a will—a document that directs the disposition of your assets and provides other instructions upon your death.
What happens without a will
If you haven't written a will, you may be surprised to learn that the state in which you reside has effectively written one for you. Every state has statutes that will determine your heirs if you die "intestate"—that is, without leaving a valid will. States also have formulas to help decide the amounts that each heir will receive. If you're unmarried and have no relatives, the state will probably award your assets to itself.
If what you've read so far isn't enough to send you running to an estate planning attorney, there's more. While the rules vary from state to state, if you die without a will and have children under age 18, the state will decide who will care for them—grandparents or siblings are typically the first choices for guardians. But if these parties don't agree with the state's ruling, a long, expensive and traumatic custody battle can ensue.
If you've been saving for the kids' college education and you leave no will, there's no guarantee that the state-appointed guardian won't spend that money on something else.
Then there's the matter of probate, the state court procedure that administers your estate. Probate applies whether you die with a will or not. It can be an expensive, arduous process under the best of circumstances. If you leave no will, it can drag out even longer as potential heirs fight for their share of your assets. Meanwhile, the probate process itself can generate substantial attorneys' fees that can reduce the value of your estate.
A living trust isn't enough
In recent years, the popularity of revocable living trusts has skyrocketed. With a living trust, you transfer assets into the trust during your lifetime. Upon your death, those assets go directly and immediately to the beneficiaries you've specified. Unlike a will, assets in a living trust don't have to go through probate. A will is a public document; a trust, in contrast, is a private document and may therefore be more difficult to challenge.
So why does someone with a living trust also need a will? Combined with a revocable living trust, a "pour-over will" can ensure that any property that is not already titled in the name of the trust before death will be transferred into the trust at death. A will can also provide for the intended disposition of assets intentionally held outside the trust.
There are other reasons to have both a will and a living trust. If you have minor children, you'll generally need a will to nominate a guardian and make financial provisions for them in the event of your death. In addition, many people don't bother to put untitled personal property like furniture or antiques into their living trusts. A will that spells out how you wish to distribute such assets might keep your heirs from battling over who should get Aunt Clara's Tiffany vase.
Writing a will
There are a number of do-it-yourself software programs and self-help books designed to help people draft their own wills, but working with an estate planning attorney is probably the best way to cover all aspects of your estate plan, including your will. For those with sizable estates, taking a team approach and employing the services of both a qualified CPA and an experienced attorney may prove worthwhile.
The prospect of meeting with an attorney can often be daunting, so it's important to find an attorney you will feel comfortable working with—from both a personality and cost perspective. Ask friends and family if they know an estate planning attorney they have had a good experience with or ask other professionals you already work with, such as your CPA or brokerage representative.
Once you have an appointment set up, it's a good idea to prepare beforehand by creating an inventory of your assets (what you own) and liabilities (what you owe), and think seriously about what you would like to have happen when you're no longer around.
This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Tax laws are subject to change, either prospectively or retroactively. Where specific advice is necessary or appropriate, Schwab recommends consultation with a qualified tax advisor, CPA and/or attorney.
The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. Each investor needs to review strategy in light of his or her own particular situation.
The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.