Before you write your will…

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September 10, 2013, 11:42 am
Michael Caplan

Michael Caplan

Writing a Will is not as simple as it sounds. For most people, it requires important decisions on how to divide assets, who to select as an executor and beneficiaries, what to do about amounts owed by you and debts owed to you and how to adequately provide for children, among other considerations.

Preparing a Will is one of the most important steps you can take in managing your finances, yet for many people, it is something they would rather not face. However, if you die intestate (without a Will), state law will apply and determine how your assets are to be distributed. What’s more, if you are a single parent of minor children, the same court will decide with whom your children will live.

On the other hand, if you take the time to prepare a Will, you will be the one who determines how your property is distributed, who will be the guardian of your minor children and who will manage your estate when you are gone.

Drafting a Will

Ideally, your Will should be drawn up by a lawyer, and you (and your heirs, if possible) should be familiar with its general form and contents. Although it is your legal right to do so, it is never a good idea to draft your own Will. You may not be aware of the statutory requirements that exist in your particular state, and some states may have different standards for witnessing a Will or require specific language that must be included in order for the Will to be valid.

When meeting with a lawyer to draft your Will, make sure to bring the proper information, as outlined below:

• List of assets. Include your real estate, bank and investment accounts; retirement accounts; and other valuable personal property. Do you have any belongings that hold sentimental value beyond their economic worth? Decide for each item whether you would like to leave it directly to one of your heirs or have it sold to increase the cash value of your estate.

• List of debts. Include your credit cards, mortgages, home equity loans, car loans, student loans, personal debts and outstanding medical or other bills. Do you have enough cash in your accounts to cover these debts? If not, which assets would you like your executor to liquidate first to pay your creditors? Then list any debts owed to you by others. Do you want these debts to be extinguished at your death, or do you want your executor to collect them to add to the value of your estate?

• List of potential beneficiaries. Include in your thoughts not only your immediate family, but also friends, relatives and institutions or organizations that have contributed positively to your life or that you would like to support. Determine which beneficiaries you would like to inherit special items, such as a treasured family heirloom, and which ones you would like to inherit all or a portion of your cash assets.

• Executor considerations. An executor is the person with administrative responsibility to settle your estate’s affairs. Essentially, the executor’s job is to protect your property until all debts have been settled and to ensure that what remains is transferred to the appropriate beneficiaries. The law does not require an executor to be a legal or financial expert. Therefore, a family member who is savvy with fiscal matters, or a trusted friend or business person could serve in this capacity. Whomever you select, make sure the person is willing and able to do the job. Discuss the position with the person you’ve chosen before you make your Will.

• Special circumstances that your executor may need to address. This could include arrangements for a child who has reached the age of majority but has special needs. Also, if you have minor children, an important provision is the selection of a guardian who would raise them in the event of your death and the death of your spouse. Also, consider any arrangements you would like to make for the care of livestock or pets, or the continuation of a business enterprise.

Finally, be sure to name an alternative executor and guardian in case your first choice is unable to serve at the time of your death.

The Post-Will Process

Once your Will is completed, your original Will should be stored in a secure place and make sure that its location is known to family members and/or close friends. Make a point of reviewing your Will every few years with your attorney — or more often if family circumstances or federal and/or state tax laws change — and revise if necessary to ensure that its contents conform to current laws and that it reflects your current status and desires.

Other Planning Considerations

In addition to a Will, you should consider having the following documents be a part of your basic estate plan:

• Trusts. Trusts are legal instruments that allow you to transfer ownership of property to a trustee (either a person or financial institution) who manages it for the beneficiaries named by the trust. There are many types of trusts that serve multiple purposes, including living trusts, life insurance trusts, trusts for minors, qualified personal residence trusts and charitable trusts. In general, trusts can help to manage assets, protect assets and avoid probate, but perhaps the biggest benefit of trusts is that they allow beneficiaries to enjoy property ownership while minimizing their tax exposure. Keep in mind that trusts are legal documents — an attorney can help explain the complexities of specific trust arrangements.

• Alternate Decision Makers. Another necessary part of any estate plan is executing a durable power of attorney, a health care proxy and a living will. These documents authorize individuals, whom you select, to make financial, legal and medical decisions on your behalf if you become unable to do so.

These are some of the basic estate planning tools that all individuals should consider. Contact me to discuss any of these tools in more detail or for help getting started with your own estate plan.

Michael Caplan is a Financial Advisor and Associate Vice President with the Global Wealth Management Division of Morgan Stanley in Denver. He can be reached at Michael.Caplan@morganstanley.com or (303) 595-2094.

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 suitable 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 Wealth Management, Member SIPC, or its affiliates. Morgan Stanley Wealth Management LLC. Member SIPC.

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