Do I need a will?
Absolutely. If you don’t write a will — and if you live in the United States — the state you live in will determine not only the distribution of your assets but also who will be the guardian of your children. With a will, you choose who’ll raise your children in your absence and how to distribute the money you leave to them. These are steps middle-income people, as well as the rich, should take — yet 75 percent of adults under age 45 don’t have a will.
How do I write a will?
Preferably with the help of an estate lawyer. Wills and estate planning are fraught with complicated loopholes. To ensure that you get what you want in a will — the right guardian, the right trustees and executors, your property distributed as you direct, the proper tax and probate loopholes created — hire a lawyer.
What does a will include?
Though there are as many permutations to a will as there are personal belongings, the most critical aspect of a parent’s will stipulates guardianship of the children and the use of their assets — property, savings, life insurance benefits and so forth — for the children.
Money and property may also be willed to other relatives, friends and charities. Typically, personal property is left to your main heirs, who will divide it among themselves, with or without bickering. If you want to bequeath certain items to specific people — your diamond engagement ring to your daughter, the grandfather clock to your sister, shoes to a homeless shelter — you can attach a letter to your will specifying your wishes, as long as you mention that letter in the will itself.
How do we choose a guardian?
Think about who you want to raise your child in your absence:
- Who shares your values, your education, your way of life, your religion?
- Who would you trust with your child under all circumstances?
- Who do you think would love your child as a parent?
- Who already knows and loves him?
Often, the answer to these questions is a brother or sister, though it may be a best friend. Before you name a guardian, establish if he or she is willing to take on this responsibility. When a child is old enough to understand the implications, talk to him about the decision.
You’ll also need a guardian for your child’s inheritance — someone to administer the property. Typically, you’d choose the same person for both responsibilities.
How do we leave money to a young child?
In your will, you can create trusts to care for your children’s financial needs. If you expect to leave them more than $20,000, including life insurance, you should put the money in a testamentary trust, described in your will. You name a trustee to distribute and manage the money per your instructions. Typically, the trustee gives the children’s guardian money from the trust to cover living expenses, education and anything else you specify. (If you know that your children will have more money than the guardian’s children, for example, you could stipulate that some funds go into a family pot for all the children in the household.)
With a trust, you also specify how old your children must be before getting the remainder of the trust fund. To ensure wise money management, some parents name their children as co-trustees once they reach their mid-20s, or they parcel out payments so that the child gets some, say, at 25, at 35, and the rest at 45. In such cases, a typical trust permits the children to use the funds for education, to start a business, or to buy a house.
Establishing a trust also can save your heirs headaches and taxes. If you have more than $600,000 in assets at the time of your death, your heirs may owe considerable estate taxes. One way to secure the money for your children and beat the tax man is to set up an irrevocable life insurance trust. With this plan, any life insurance proceeds will go into the trust — and not be taxed.
If you’re leaving an inheritance of under $20,000, you can set up a custodial account for your children through the Uniform Transfers to Minors Act (UTMA). As with a trust, you name a custodian for the money, who will manage it for your children until they come of age, according to your state’s definition of custodianship under UTMA.