What is the Process for Setting Up a Will?

What is the Process for Setting Up a Will?

Creating a will is often a task that everyone knows they should do but it gets put on the back burner. Creating a will is one of the most critical things you can do for your loved ones. Putting your wishes on paper helps your heirs avoid unnecessary hassles, and you gain the peace of mind knowing that a life's worth of possessions will end up in the right hands.  But before for you do, it helps to know the overall process of setting up a will to save you time and money.

What is a will?

A will is simply a legal document in which you, the testator, declare who will manage your estate after you die. Your estate can consist of big, expensive things such as a vacation home but also small items that might hold sentimental value such as photographs. The person named in the will to manage your estate is called the executor because he or she executes your stated wishes. Sometimes though, people get confused by this and aren't too sure what the meaning of an executor.

A will can also serve to declare who you wish to become the guardian for any minor children or dependents, and who you want to receive specific items that you own - Aunt Sally gets the silver, Cousin Billy the bone china, and so on. Someone designated to receive any of your property is called a "beneficiary."

Some types of property, including certain insurance policies and retirement accounts, generally aren't covered by wills. You should've listed beneficiaries when you took out the policies or opened the accounts. Check if you can't remember, and make sure you keep beneficiaries up to date, since what you have on file when you die should dictate who receives those assets.

What happens if I die without a will?

If you die without a valid will, you'll become what's called intestate. That usually means your estate will be settled based on the laws of your state that outline who inherits what. Probate is the legal process of transferring the property of a deceased person to the rightful heirs.

Since no executor was named, a judge appoints an administrator to serve in that capacity. An administrator also will be named if a will is deemed to be invalid. All wills must meet certain standards such as being witnessed to be legally valid. Again, requirements vary from state to state.

An administrator will most likely be a stranger to you and your family, and he or she will be bound by the letter of the probate laws of your state. As such, an administrator may make decisions that wouldn't necessarily agree with your wishes or those of your heirs.

Do I need an attorney to prepare my will?

No, you aren't required to hire a lawyer to prepare your will, though an experienced attorney can provide useful advice on estate-planning strategies such as establishing testamentary, revocable, and irrevocable trusts. But as long as your will meets the legal requirements of your state, it's valid whether a lawyer drafted it or you wrote it yourself on the back of a napkin.

Do-it-yourself will kits are widely available online which are of course better than nothing but we usually recommend that our clients at least have an attorney review their will and make sure the specifications in their will match their wishes.

Should my spouse and I have a joint will or separate wills?

Estate planners almost universally advise against joint wills, and some states don't even recognize them. Odds are you and your spouse won't die at the same time, and there's probably property that's not jointly held. That's why separate wills make better sense, even though your will and your spouse's will might end up looking remarkably similar.

In particular, separate wills allow for each spouse to address issues such as ex-spouses and children from previous relationships. Ditto for property that was obtained during a previous marriage. Be very clear about who gets what. Probate laws generally favor the current spouse.

Who should I name as my executor?

You can name your spouse, an adult child, or another trusted friend or relative as your executor. If your affairs are complicated, it might make more sense to name an attorney or someone with legal and financial expertise. You can also name joint executors, such as your spouse or partner and your attorney.

One of the most important things your will can do is empower your executor to pay your bills and deal with debt collectors. Make sure the wording of your will allows for this, and also gives your executor leeway to take care of any related issues that aren't specifically outlined in your will.

How do I leave specific items to specific heirs?

If you wish to leave certain personal property to certain heirs, indicate as much in your will. In addition, you can create a separate document called a letter of instruction that you should keep with your will.

A letter of instruction, which isn't legally binding in some states, can be written more informally than a will and can go into detail about which items go to whom. You can also include specifics about any number of things that will help your executor settle your estate including account numbers, passwords and even burial instructions.

Another option is to leave everything to one trusted person who knows your wishes for distributing your personal items. This, of course, is risky because you're relying on this person to honor your intentions without fail. Consider carefully.

Who has the right to contest my will?

Contesting a will refers to challenging the legal validity of all or part of the document. A beneficiary who feels slighted by the terms of a will might choose to contest it. Depending on which state you live in, so too might a spouse, ex-spouse or child who believes your stated wishes go against local probate laws.

A will can be contested for any number of other reasons: it wasn't properly witnessed; you weren't competent when you signed it; or it's the result of coercion or fraud. It's usually up to a probate judge to settle the dispute. The key to successfully contesting a will is finding legitimate legal fault with it. A clearly drafted and validly executed will is the best defense.

Michael Ruger

About Michael.........

Hi, I'm Michael Ruger. I'm the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.

Comparing Different Types of Employer Sponsored Retirement Plans

comparison of different types of retirement plans

Employer sponsored retirement plans are typically the single most valuable tool for business owner when attempting to:

• Reduce their current tax liability

• Attract and retain employees

• Accumulate wealth for retirement

But with all of the different types of plans to choose from which one is the right one for your business?   Most business owners are familiar with how 401(k) plans work but that might not be the right fit given variables such as:

• # of Employees

• Cash flows of the business

• Goals of the business owner

There are four main stream employer sponsored retirement plans that business owners have to choose from:

• SEP IRA

• Single(k) Plan

• Simple IRA

• 401(k) Plan

Since there are a lot of differences between these four types of plans we have included a comparison chart at the conclusion of this newsletter but we will touch on the highlights of each type of plan.

SEP IRA PLAN

This is the only employer sponsored retirement plan that can be setup after 12/31 for the previous tax year.   So when you are sitting with your accountant in the spring and they deliver the bad news that you are going to have a big tax liability for the previous tax year, you can establish a SEP IRA up until your tax filing deadline plus extension, fund it, and take a deduction for that year.

However, if the company has employees that meet the plan’s eligibility requirement, these plans become very expensive very quickly if the owner(s) want to make contributions to their own accounts.  The reason being, these plans are 100% employer funded which means there are no employee contributions allowed and the employer contribution is uniform for all plan participants.  For example, if the owner contributes 15% of their income to the SEP IRA, they have to make an employer contribution equal to 15% of compensation for each employee that has met the plans eligibility requirement.  If the 5305-SEP Form, which serves as the plan document, is setup correctly a company can keep new employees out of the plan for up to 3 years but often times it is either not setup correctly or the employer cannot find the document.

Single(k) Plan or “Solo(k)”

These plans are for owner only entities.  As soon as you have an employee that works more than 1000 hours in a 12 month period, you cannot sponsor a Single(k) plan.

The plans are often times the most advantageous for self-employed individuals that have no employees and want to have access to higher pre-tax contribution levels.  For all intensive purposes it is a 401(k) plan, same contributions limits, ERISA protected, they allow loans and Roth contributions, etc.  However, they can be sponsored at a much lower cost than traditional 401(k) plans because there are no non-owner employees.  So there is no year-end testing, it’s typically a boiler plate plan document, and the administration costs to establish and maintain these plans are typically under $400 per year compared to traditional 401(k) plans which may cost $1,500+ per year to administer.

The beauty of these plans is the “employee contribution” of the plan which gives it an advantage over SEP IRA plans.  With SEP IRA plans you are limited to contributes up to 25% of your income. So if you make $24,000 in self-employment income you are limited to a $6,000 pre-tax contribution.

With a Single(k) plan, for 2016, I can contribute $18,000 per year (another $6,000 if I’m over 50) up to 100% of my self-employment income and in addition to that amount I can make an employer contribution up to 25% of my income.  In the previous example, if you make $24,000 in self-employment income, you would be able to make a salary deferral contribution of $18,000 and an employer contribution of $6,000, effectively wiping out all of your taxable income for that tax year.

Simple IRA

Simple IRA’s are the JV version of 401(k) plans.  Smaller companies that have 1 – 30 employees that are looking to start a retirement plan will often times start with implementing a Simple IRA plan and eventually graduate to a 401(k) plan as the company grows.  The primary advantage of Simple IRA Plans over 401(k) Plans is the cost. Simple IRA’s do not require a TPA firm since they are self-administered by the employer and they do not require annual 5500 filings so the cost to setup and maintain the plan is usually much less than a 401(k) plan.

What causes companies to choose a 401(k) plan over a Simple IRA plan?

• Owners want access to higher pre-tax contribution limits

• They want to limit to the plan to just full time employees

• The company wants flexibility with regard to the employer contribution

• The company wants a vesting schedule tied to the employer contributions

• The company wants to expand the investment menu beyond just a single fund family

401(k) Plans

These are probably the most well recognized employer sponsored plans since at one time or another each of us has worked for a company that has sponsored this type of plan.  So we will not spend a lot of time going over the ins and outs of these types of plan.   These plans offer a lot of flexibility with regard to the plan features and the plan design.

We will issue a special note about the 401(k) market.  For small business with 1 -50 employees, you have a lot of options regarding which type of plan you should sponsor but it’s our personal experience that most investment advisors only have a strong understanding of 401(k) plans so they push 401(k) plans as the answer for everyone because it’s what they know and it’s what they are comfortable talking about.   When establishing a retirement plan for your company, make sure you consult with an advisor that has a working knowledge of all these different types of retirement plans and can clearly articulate the pros and cons of each type of plan. This will assist you in establishing the right type of plan for your company. 

Michael Ruger

About Michael……...

Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.