Did you know that the majority of Americans do not have a will? This is one of those circumstances where you definitely don’t want to be part of the crowd!
Whether you’re a pop star like Prince, or simply someone’s Pop, having a last will and testament is vitally important. It declares your intent, laying out what you want to happen to your assets in the event of your death. If you have children, a will also specifies their guardianship.
However, simply writing up a will isn’t the only concern you should have. You also need to worry about parallel beneficiary designations. When it comes to the estate of you and your spouse, the order (and timing) of your death(s) can cause bigger problems than you may realize.
Let’s talk about the estate planning documents you need to have in place, as well as the contingencies involved.
Note: different states have different requirements when it comes to Estate Planning Documents. So, if you move to another state, you very well might need to update or redo your documents.
What Is a Last Will and Testament?
A will is the most basic estate planning document. In it, you outline your wishes for your assets, children, and even what you want those left behind to do with your remains. There are caveats to the power of this document, though.
It’s important to realize that your titled assets pass outside of the will. For example, if your checking account has a “payable-on-death” beneficiary specified, the account is transferred to that person upon your death, regardless of what is specified in the will. If your home is jointly owned (rights of survivorship), it passes to the remaining owner(s) outside of the will.
You should also note that life insurance has its own beneficiaries specified. Policy benefits are not governed by your will.
Where possible, you should specify beneficiaries on all your accounts (bank accounts, CDs, 401k, etc) so those assets pass outside of the will. This will allow you to bypass the expense and delay of probate.
Legal Zoom offers one-person Estate Planning for $149, and for two people, it’s $249. If you are going to the effort of doing a will, you really should get the Will, Power of Attorney and Living Will package:
At Legal Zoom’s website, you answer a bunch of questions, and it generates the legal documents. Then you get PDFs ready to print and have notarized. Optionally, they will mail the documents on fancy paper for an additional fee. The process is easy and great for preparing simple documents.
A less expensive and more flexible option is US Legal Forms. For $50 you can instantly download a fully editable set of state specific Microsoft Word documents:
Legal Zoom vs. US Legal Forms
I have personally used both Legal Zoom and US Legal Forms. For me, I much preferred US Legal Forms because I could modify the Microsoft Word document as needed.
For example, I once prepared a power of attorney document for a 90-year-old family friend. We wanted to specify both her grandson and me to be powers of attorney, each able to act independently should the other be unavailable.
The Legal Zoom document didn’t support that arrangement, though. One of us had to be specified as primary POA and the other as the contingent, should the primary withdraw. When we used that document at Wells Fargo, they wouldn’t establish us both as powers of attorney.
When I ultimately re-did the power of attorney document using the US Legal Forms Word document, I simply specified AND/OR. I made it clear in the JOINT POWER section that either agent can act independently (only one signature required, not two).
Having complete control over the Word Document was particularly important when it came time to specifying Contingent Beneficiaries.
Risk of Editing an Old Estate Planning Document
Sometimes, laws change.
For example, in 2014, Pennsylvania made big changes to requirements for Power of Attorney documents.
Let’s say you purchased a valid document from US Legal Forms in 2010. You then edited it in 2017, without buying a fresh document from US Legal forms. In this case, the edited document, based on the 2010 original, would not comply with the new 2014 requirements.
How Sequence of Death can Kill your Estate Plan
Many estates are relatively simple. A married couple might leave 100% to the surviving spouse with the surviving spouse leaving 100% to their children. If both die at the same time, the estate would simply go to the children.
In this case, who dies first doesn’t matter. However, things can get more complicated and can go horribly wrong when it comes to contingent beneficiaries, based on sequence of death.
For example, consider this scenario: a married couple with no children designates the other spouse as 100% primary beneficiary. For contingent beneficiaries, the husband names his side of the family and the wife names hers. The husband dies, and everything goes to the wife.
Then, six months later, the wife dies.
In her grief, she hadn’t yet gotten around to changing her will. Because of this, the combined assets of both husband and wife goes only to her side of the family.
This problem can easily be remedied if the husband and wife agree on a set of contingent beneficiaries which fairly represent both sides of the family and that contingency-combo is specified for all accounts for both husband and the wife.
Some wills have language which specifies who should be assumed to have died first, if it’s difficult or impossible to determine (e.g. both died in a car accident). Some wills have language which specifies that one spouse must have survived the other by 30 or 60 days.
Sure, such language might be helpful if both die in the same event. However, it does nothing for a more common scenario of the 2nd spouse not changing their will in a timely fashion, after the first spouse dies.
My spouse and I created a common set of contingent beneficiaries in a Microsoft Excel document.
We included each person’s name, address, Social Security number, phone number, birthday, relationship, and estate percentage. I then took a screen shot of the contingent beneficiaries and pasted it into my US Legal Forms Word Document.
Having complete control of the Word document was a huge plus. It would have been tedious and time consuming to do using a Legal Zoom online wizard.
We used the same Excel document for my workplace 401k and life insurance policies. It was great having all the information in one file that could be re-used in multiple wills and documents, without having to re-invent the wheel.
Advanced Excel Tip
If you used math formulas to divide up the estate, the resulting percentage for each beneficiary might not be whole number. If you used Excel’s rounding function to display whole numbers, make sure the sum of the displayed values adds up to 100%.
In my first draft, due to rounding, it added up to 101% and was rejected by the life insurance company – talk about embarrassing.
Life Insurance Tip
If your plan is to leave some money to charities and some money to individuals, you might want to name only individuals as beneficiaries on life insurance policies. This is because life insurance proceeds pass tax-free, whereas individuals will pay taxes on 401k distributions.
You might want to consider naming the charities as recipients of a 401k or IRA.
Your estate documents will be constantly changing, and it’s important to update them anytime a significant change occurs. However, here are some basic recommendations regarding your planning:
- Everyone should have Will, Living Will, and Power of Attorney document.
- If you don’t want to pay an attorney to prepare the documents, there are some very good do-it-yourself alternatives.
- Consider sequence of death when specifying contingent beneficiaries.
- Don’t procrastinate or let “the perfect be the enemy of the good.”
Do you have any other tips regarding wills and beneficiaries? Share them below!