What is a Will?
A will is a document that allows you to direct how your property is distributed after your death. You may wish to leave your property to certain people or charities in the percentages or specific amounts you determine. In a will, you can name guardians for your minor children, nominate a personal representative, and select trustees for any trusts you may create. If you do not have a will, the probate court will apply state law to divide and distribute your property.
Do all assets pass by your will?
No. Property that passes by will is called "probate property." This property generally includes assets standing in your own name. Property that does not pass by will is called "non-probate property." The four major types of non-probate property are life insurance, retirement plans, trusts, and property owned in joint tenancy.
Life Insurance. Life insurance proceeds are paid to a named beneficiary and are not affected by a will.
Retirement Plans. Retirement plan benefits are also paid to a named beneficiary and are not affected by a will. Retirement plans include IRAs, Keoghs, profit-sharing plans, pension plans, SEP plans, and 401(k) plans. Many plans have automatic provisions for spouses, so if you name someone other than your spouse as beneficiary, he or she may not necessarily receive the proceeds unless your spouse expressly waives this right.
Trusts. A trust is an entity in which a trustee holds title to certain assets and manages them for the benefit of another. When a trust is created, it states who will receive the property and when the trust will end. There are many different types of trusts.
Joint Tenancy Property. Property owned in joint tenancy passes automatically by operation of law to the surviving joint tenant. Both real property, like a house, and personal property, such as a bank account, can be placed in joint tenancy. There must be specific language in the instrument specifying a joint tenancy. Conversely, a person's share of property owned with another as "tenants in common" passes under a will.
Additional Estate Planning Documents to Consider
Living Will/Advance Medical Directive. A living will provides guidance to medical professionals, along with your loved ones, in the event that you become terminally ill, incapacitated, or beyond hope of recovery. You can state that you do not wish to be kept alive by artificial life support systems. If you are in Colorado, a doctor must follow its instructions.
Medical Power of Attorney. A medical power of attorney names another person to act on your behalf for medical decisions only if you become unable to make decisions for yourself. It can be a simple appointment for a person to make all decisions or it can be specifically customized.
Anatomical Gift. You may request that an anatomical gift be made for transplant or research. This can be accomplished by a provision in your will and/or medical power of attorney by signing separate written instructions, or by signing the organ donor instructions on the back of your driver's license.
Financial Power of Attorney. A power of attorney is a document in which you name another person to act on your behalf for legal or financial matters, such as running your business. By appointing such a person, you can usually avoid a court proceeding in which a conservator is appointed in the event you become disabled or unable to make your own decisions. The power of attorney may allow your agent to conduct all acts related to your financial affairs, or it may set limits on the powers of the agent.