Whether you’re a young adult, middle-aged or a senior citizen, there are important reasons why you need a Last Will and Testament (a “Will”). It doesn’t matter if you are single, married, have children or do not have children. A Will transfers your assets according to your directions. This helps your family maintain control of assets and minimizes the government’s role in the distribution of your estate.
A Will is a legal document that you create to outline your instructions for the distribution and management of your property after your death. It also appoints those responsible for completing these tasks. As one of the most important documents you will ever sign, a Will enables you to decide who will receive your assets, how they will receive them and when they will receive them. Creating a Will to ensure your family’s well-being is usually simple and inexpensive but it must be in writing and meet certain formalities required by state law. If you do not have a Will, state law dictates who your beneficiaries will be and how they will share your estate. In addition, the basic other pitfalls of dying without a Will include:
• Your wishes will be ignored
• A stranger may become your Administrator or Personal Representative
• The court will appoint a Guardian for your minor children
• Your estate may miss tax saving opportunities
• Your children may receive their inheritance NOW (instead of at age 18)
Creating a Trust in Your Will
Creating a trust in your Will or setting up a trust during your lifetime can help protect your beneficiaries and provide additional security for your family. A trust created under your Will is called a TESTAMENTARY TRUST. This type of trust can operate similarly to a revocable trust or irrevocable trust you create during your life. Many Wills are structured as “pour-over Wills” where assets held in the estate governed by the Will are “poured over” into your revocable living trust (see next section). The decision on whether to create a trust via your Will or separately is one you can make in consultation with your attorney.
What a Will Does and Doesn’t Do
Your Will determines the disposition of the property owned or titled in your name at the time of your death. For example, your Will enables you to:
• Provide for your family’s future financial needs
• Choose an experienced Executor (or Personal Representative) to see that your wishes are followed
• Select the Guardian who you believe is best suited for taking care of your minor children and their inheritance
• Establish trusts to protect and manage the inheritances of minor or financially inexperienced beneficiaries as well as to protect these inheritances from the claims of creditors including in the case of divorce
• Establish trusts and other estate planning strategies designed to help minimize tax burdens
• Help assure prudent and experienced management of your assets
• Enjoy peace of mind now knowing that your family and other beneficiaries will be taken care of according to your wishes
• Ensure that your personal belongings such as jewelry, heirlooms, etc. will go to those whom you wish
Your Will does not generally control the disposition of property that is not solely in your name as the time of your death or controlled by specific beneficiary designations. Examples include:
• Jointly Owned Assets – Any assets owned as “joint tenants with rights of survivorships” will pass directly to the surviving joint owner
• Life Insurance – Typically, the policy will enable the owner of the policy to name a beneficiary
• Retirement Accounts (IRAs, 401(k)s, etc.) – Like an insurance policy, these accounts are paid to the beneficiaries that you have named
• Financial Accounts with a Named Beneficiary (such as a transfer on death account) – Many financial institutions will enable the account owner to direct the disposition of the account on his/her death pursuant to a “Transfer on Death” designation on file for the account allowing the account to pass directly to the named beneficiary
In your Will, you name an EXECUTOR (or, in some states, called a PERSONAL REPRESENTATIVE) to carry out the distribution and management of your estate. Anyone other than a minor or incompetent individual can be an Executor. You can choose a spouse, relative, friend, attorney or professional fiduciary. It is a good idea to also name a contingent (back-up) Executor to take over in case your primary Executor cannot serve or becomes unable to serve. Typical Executor duties under your Will include:
• Collecting, managing and conserving estate assets
• Notifying your creditors and paying all valid debts
• Collecting any debts, life insurance proceeds or retirement plan benefits due the estate
• Managing and investing estate assets
• Selling assets to pay estate taxes and expenses
• Keeping detailed records and submitting them to your beneficiaries and/or the probate court for approval
• Distributing estate assets to your beneficiaries
• Hiring an attorney or tax specialist to prepare and file all required federal and state tax returns and other tax related requirements
Serving as Executor is often an arduous and complex task. The task of settling an estate often takes more than a year and, depending on the complexity of the estate, could continue for several years.
Another function of your Will is to name a GUARDIAN for your minor children. The Guardian you choose in your Will is the person who will raise your children and manage the inheritance you leave them in the event of your death (and the death of your spouse). You should also name a contingent Guardian in case your primary Guardian is not willing or able to accept the responsibility of raising your children. Keep in mind that if you do not have a Will naming a Guardian for your minor children, the probate court will do so and it can select someone other than a relative. Finally, your Will is likely to need updates as time moves on and life changes. Births, deaths, marriages, divorces, relocations to another state, tax law changes, income changes, inheritances and many more life events could call for an update to your Will.
It’s often a good idea to review your Will at least every 2-4 years and revise it whenever warranted, such as when your personal or financial circumstances significantly change. A Will can be changed, modified or entirely revoked before death.
Preparing for Your Meeting with an Estate Planning Attorney; Article by Morgan Stanley and provided courtesy of Morgan Stanley Financial Advisor.
H. Michael Okby is a Financial Advisor with the Global Wealth Management Division of Morgan Stanley in Saratoga Springs, NY. Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors or Private Wealth Advisors do not provide tax or legal advice. Clients should consult their tax advisor for matters involving taxation and tax planning and their attorney for matters involving trust and estate planning and other legal matters. The information contained in this article is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be appropriate for all investors as the appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives. Investing involves risks and there is always the potential of losing money when you invest. The views expressed herein are those of the author and may not necessarily reflect the views of Morgan Stanley Smith Barney LLC, Member SIPC, or its affiliates. CRC 5456051 02/2023