No matter what size estate you leave behind, you want to ensure your assets are distributed and managed according to your desires. Most people understand the power of a last will and testament in directing the liquidation, distribution, and ongoing management of their estates after they die. But what many people fail to realize is that wills are not a one-size-fits-all legal document. Without the right supportive documentation in place, a will cannot control how estates are handled after a person passes.
Below we cover various types of documentation to consider when estate planning. Incorporating these measures early on will leave you feeling more comfortable knowing what happens to your money when you die.
Prepare a Last Will and Testament
For those with personally held assets, a last will and testament is a legal document that articulates who gets what parts of an estate. If someone is leaving behind dependents, this document can also identify the person or persons they want to assume responsibility for caring for those dependents.
When properly supported with other documentation and planning—ranging from prenuptial agreements to pour-over wills to powers of attorney—a will provides security that a person’s estate and wishes will be properly managed and executed after their passing.
But contrary to what many people assume, wills are not comprehensive. This is why understanding the role of wills—including their limitations—is crucial when making end-of-life plans involving estates. Limitations that may affect end-of-life planning include:
- The public visibility of wills. Because wills pass through probate, they become public record. This can be undesirable if you’re seeking privacy when settling personal financial matters.
- Wills are not helpful if you become incapacitated. Different documentation is required to outline procedures for scenarios in which the testator (i.e., the person who wrote the will) becomes incapacitated and unable to make financial decisions regarding their estate.
- Wills can’t shield you from federal estate and income tax payments. During the probate process, the government collects taxes. If you want to minimize the taxes paid on your estate when dispersing assets to your beneficiaries, other arrangements—such as a trust—may be necessary.
It is also important to not let small oversights lead to big problems in the management of your estate and the execution of your will. Here are some other important factors to keep in mind when estate planning.
Using a Pour-Over Will
If you’ve set up a revocable living trust that you want to fund with part of your estate, a standard will won’t be sufficient. If you want to direct assets into this trust, one option is to set up a pour-over will.
Pour-over wills provide two key points of coverage. First, they identify the assets that should be moved into the trust, shielding those assets from potential tax implications.
Second, they cover any assets the grantor accumulated since the trust was written. As estates grow and evolve, pour-over wills help you keep your will and supporting documentation current, giving you more control over your assets and their distribution.
Establishing a Prenuptial Agreement
If you have a blended family or a second marriage, you might want to provide income for your spouse after you pass away, while also limiting the number of assets they inherit. In this case, you cannot solely rely on your will.
A marriage contract supersedes the guidance in any will when it comes to protecting assets, meaning you can’t use your will to specify that certain assets are to be withheld or redirected away from a surviving spouse.
If you want to restrict your spouse’s access to certain assets, you might consider a prenuptial agreement signed before marriage. If you’re already married, a financial planner can identify alternatives, such as the establishment of an irrevocable living trust.
Whatever your motivations or needs may be, this estate planning process is critical to keep part of your estate separate from your spouse.
make the best financial decisions
A will is an essential starting point in the end-of-life estate planning process to know what happens to your money when you die. However, you should also consult with financial planners and attorneys to ensure you have covered all your bases in what can become a complicated planning process.
If you haven’t yet begun working with an experienced financial planner, connect with a member of the Prudent Investors team to learn more about our investment management practices and how we can assist with your estate planning needs.