The Basics of Estate Planning – Part II

In Part I, we discussed estate planning and the importance of having an estate plan.  This issue will focus on the first of four estate planning tools – a Will or Last Will and Testament, and the advantages and disadvantages of having a Will. 

What is a Will?

A Will is a legal document containing your written instructions for how your property/assets will be distributed and how your dependents will be cared for in your absence.  Your assets may consist of bank accounts, brokerage funds, vehicles, real estate, items of sentimental value, and other personal property.

In a Will-based estate plan, your Last Will and Testament will cover four important points:

  1. Who will serve as your Personal Representative/Executor;
  2. What powers your Personal Representative/Executor will have;
  3. Who will be your beneficiaries (those who will inherit your property); and
  4. How your property will be transferred to your beneficiaries.

If you have minor children, your Last Will and Testament will also cover who serves as guardian for your children.

There are several types of Wills, including the following:

Self-Proving/Testamentary Will

A self-proving Will, also known as a testamentary Will, is the traditional type of Will with which most people are familiar. It is a formally prepared document that is signed in the presence of witnesses.

Holographic Will

A holographic Will is one that is written by hand, not typed or created on a computer or word processor and without the presence of witnesses. These Wills are only valid in a few states.  Maryland and the District of Columbia do not recognize holographic Wills.

Oral Will

Oral wills are spoken testaments given before witnesses. These are not widely recognized by courts due to the strong possibility of fraud, misunderstandings, or mistakes.

What Are the Legal Requirements for a Will?

A Will is valid if:

♦     the Will maker is eighteen years old;
♦     the Will is in writing;
♦     the Will is signed by the Will-maker;
♦     the Will is witnessed and signed by at least two people in the presence of the Will maker.

What Are the Advantages and Disadvantages of Wills?

Potential Advantages

  1. A Will is good for individuals and families who do not have assets that would have to go through the court process called probate, or who are not concerned with avoiding probate.
  2. A Will is traditionally less expensive to prepare than a trust-based estate plan.
  3. A Will allows you to appoint a guardian to care for your minor children until they become adults.

 Possible Disadvantages

  1. A Will may not provide sufficient tax planning leaving your estate and/or beneficiaries to pay hefty federal, and state estate taxes.
  2. A Will may not sufficiently protect your assets from creditors.
  3. A Will must go through probate, which can take anywhere from a few months to a couple of years; very expensive; and complex.  Probate also lacks privacy, meaning your estate plan will become part of the public court records that anyone can read, including your Last Will and Testament, a list of your beneficiaries and assets, and a break down of who’s getting what and how and when they get it.
  4. A Will alone does not make any provisions if you should become incapacitated.
  5. A Will generally addresses the distribution of the bulk of your assets, however, there are some assets that are not covered by the instructions in your Will such as community property, life insurance payouts, retirement assets, investment accounts that are designated as “transfer on death,” and assets owned jointly by two or more people where the survivor automatically gains ownership (joint tenants with right of survivorship).

Don’t let the long list of possible disadvantages of Wills discourage you from estate planning.  All of the possible disadvantages listed above can be addressed with other estate planning tools.

How Can I Change or Revoke My Will?

You can always revoke or change your Will before you die.  You can change your Will by executing a new Will or by an addition called a “Codicil.” Written changes, such as additions, deletions, comments or marks, on the Will itself may invalidate the Will. Therefore, once signed, a Will should not be altered in any way without the assistance of an estate planning attorney.

What Should I Consider When Making A Will?

♦     Who should receive my property? In what proportions? If there are children, at what age(s)? If a person you wish to name to receive a share of your estate dies before you, who should receive that share?

♦     Who should be named as guardian of my minor children? If you have minor children you should also consider a Child Protection Plan which will name temporary and permanent guardians for your children.

♦     Should a Trust be created in my Will for my spouse, children or others?

♦     Should insurance proceeds be payable to a Trustee named in my Will? Spouse? Children?

♦     Who should I name as Personal Representative? Successor Personal Representative?

♦     Do I expect to inherit property from a parent or others, thereby increasing the size of my estate and creating the need for more careful planning?

♦     Can I lessened or avoid estate taxes?

I hope this information helped you better understand Wills and how they fit into the estate planning process.  Next, we’ll discuss another estate planning tool, trusts, and their advantages and disadvantages.  As always, if you have any questions about any aspect of estate planning, I invite you to contact me by phone (301) 968-1630 or email.

Serving your interests in Maryland and Washington, D.C.

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