Do I Need A Will?
A will is a legal document that tells the world who will get your assets after you die. If you die without one, the State decides who gets what, without regard to your wishes or the needs of your children. This is what State intestacy laws are all about.
If you have young children, then making a will is especially important because wills are the best way to transfer guardianship of minors.
Even if you have a trust, will is still useful. A trust is a legal device that lets you put conditions on the distribution of your asset after you die and it often can minimize gift and estate taxes. But most trusts deal only with specific assets, such as life insurance or a piece of property, will is needed to transfer total assets.
Some trusts deal with the bulk of your assets, but you still need a pour-over will. In addition to naming a guardian for your children, a pour-over will ensure that all assets will be put into the trust. Any asset that is not retitled in the trust will be subject to probate (court decides who gets it).
A testamentary will (commonly called will) is a traditional way to transfer one’s estate upon one’s death. A will is not enforceable until the death of the person who made the will. Wills typically do three things:
- Transfer Property
- Select An Executor
- Appoint A Guardian And Trustee For Minor Children
Most people use wills to transfer their assets after death to individuals or organizations. Most often, wills are used between spouses to transfer all the estate to the surviving spouse after one spouse dies. This type of wills is also called a reciprocal will or simple will. Upon the death of the surviving spouse, such will typically states that the remaining estate is to be divided among the children.
However, if you have a large estate, usually estate in excess of $600,000, a simple will may not be the best approach. Such estates could incur substantial taxes. Some of the taxes can be avoided through the use of wills, living trusts, and/or gifts that incorporate estate planning tools designed to minimize your estate taxes upon your death.
Wills do have some drawbacks, but they are still viewed by the public and attorneys as one of the more efficient methods of handling an average estate. Some of the disadvantages are related to people who have children from a previous marriage or if they have assets in excess of $600,000.
Select An Executor
A will is used to select your executor. The executor is the person who will follow through with the instructions of your will and enforce it. The executor is paid a very modest fee from the assets of your estate. The executor could be your spouse or your children. You should also have a backup executor in case if the named executor dies before you.
Appoint A Guardian And Trustee For Minor Children
A will can also be used to select a guardian and trustee for minor children when both parents die prior to any child reaching the age of 18. The guardian is the person you select to raise your children. The trustee is the person you select to control the assets and money that you have left your children in your will. Most people use their will to create a trust for minor children so that the assets are protected by the trustee until the minor children reach the age of 18, 22 or older. By protecting the assets in the trust, the children cannot spend their inheritance on frivolous things or spend it at once. Instead, the trustee will use the funds for the needs of children. Assuming sufficient funds are available, the trustee may also use some of the funds to encourage the children to go to college.
Will can be amended at any time. In fact, it’s a good idea to review it periodically and especially when your marital status changes. Meanwhile, you should also review your beneficiary designations for your 401(k), IRA, pension and life insurance policy since these accounts will be transferred automatically to named beneficiaries when you die.
A living will is a written statement in which a person declares whether he wants, under certain circumstances, to have life-sustaining treatment withheld or withdrawn. In Ohio, a living will is effective only when a person is:
- in a terminal condition and death is imminent ,or
- permanently unconscious.
More and more people want to have a living will because medical technology has made it possible to keep individuals alive artificially, but prolonged artificial life support might be both emotionally and financially devastating to a family. Moreover, people want to participate in the decisions related to their death, such as manner of death, place of death, and relationship with attending physician. Finally, some people want to die in accordance with their religion or ethics.
Living wills are not the same as a testamentary will (commonly called will). They are different documents and have different uses. A testamentary will transfers your estate after your death whereas a living will deals only with the issue of life sustaining treatment while you are alive.
Living wills are also different from Durable Powers of Attorney for Health Care (DPOA-HC). A DPOA-HC is a document wherein you give someone else the authority to make a health care decision for you in the event you are unable to make it yourself. A DPOA-HC allows your agent to make a health care decision anytime you cannot. In contrast, a living will is your instruction to the doctor or hospital, in case you become permanently unconscious or in a terminally ill condition. A living will has no agent involved.
Durable Power of Attorney for Health Care
A Durable Power of Attorney for Health Care (hereinafter a “DPOA-HC”) is a document used by an individual to select an agent to make a health care decision for them if they cannot make it on their own due to mentally incompetent, unconscious, or sedated. Typically, an individual selects their spouse as their agent and then selects a backup agent. The backup agent is usually an adult child, loved one or close friend.
A DPOA-HC allows your agent to tell the physicians, hospital or nursing home what type of treatment, medication or medical procedure should be used.
A DPOA-HC also allows your agent to obtain your medical records and seek a second opinion, to hire and fire physicians or transfer you to a different hospital or health care facility, including a nursing home. You can specify the scope of the authority. This is a good way to ensure that the medical treatment you are receiving is the best.
A DPOA-HC also allows your agent to instruct the physicians and hospital to withhold or withdraw medical treatment if you are terminally ill and death is imminent or if you are permanently unconscious.
A DPOA-HC should not be confused with two other similar documents, Durable Power of Attorney and Living Will. With a Durable Power of Attorney, you are also selecting an agent, but the agent only receives the authority to handle your financial affairs. With a Living Will, you state in advance that you do or do not wish to be kept alive artificially. A Living Will consists of your instructions to the physicians, hospital and nursing home to withhold or withdraw life sustaining treatment if it is artificially prolonging your life.
A living trust is a trust which is funded with assets and which can be amended and revoked by the person creating the trust. A living trust is very helpful in avoiding probate. Probate is the process where a court oversees the distribution of properties after the death of the owner/grantor. It could be slow and costly. If one transfers his/her assets to a trust, so that assets are owned by the trust, then, at one’s death, one owns no asset. Thus there is no need for probate. Moreover, trust makes it more difficult for creditors to access owner’s assets while he is still living. A creditor has to petition a court for a charging order before the creditor can get to the assets held in the trust.
In most instances, a trust becomes irrevocable upon the death of the Grantor. This means that the assets in the trust can no longer be take back and they have to be distributed to the beneficiaries of the trust according to trust’s instructions. Since beneficiaries have no control over the trust property, their creditors cannot reach assets in the trust.
A living trust will also afford to some people greater privacy, lower court costs and attorney fees, lower appraisal fees and lower executor fees (as compared with trustee fees ). Additionally, a living trust will speed the process of transferring all your assets and reduce the probability of litigation among your heirs.
There are disadvantages too. Living trusts are expensive to create as compared to the cost of a typical will. In essence, you are hiring a lawyer to transfer all the same assets that probate court would transfer upon your death into the living trust while you are alive. Additionally, there may be annual expenses for a living trust that are not present when you have a will. Finally a living trust is a lifetime effort. For the remainder of your life, your trustee must manage and maintain the living trust. And finally, there are some minor tax advantages to using a will rather that a living trust.
Probate is a legal process of administrating one’s assets after his death. An attorney is selected by the executor to prepare the probate court documents and give advice on basic procedures and law. Probate is more than merely transferring a person’s assets after death. The probate process includes payment of debts, preparation of asset lists, distribution of assets, preparation of estate and income taxes, and in some instances, the creation and maintenance of trusts and appointment of guardians for minor children.
Although a living trust can be an alternative to probate, in many instances it is unnecessary and too expensive. There are alternatives that may achieve the same results as a living trust. People should be aware of trust sold by commercial entities or financial planners. At best, these trusts are not effective. At worst, you might incur more expenses later on.