How to Set up an Estate

Create a will to distribute your estate assets to whomever you desire.^[1] If you don't have a plan, the government will handle it for you through a process called intestacy.^[2] Intestacy rules within each state serve to approximate the intent of an average person dying without a plan for their possessions. That's a highly unscientific approach that can lead to fighting and an unfair distribution of your wealth. There are three ways to set up a will:

• Statutory Wills: These are public forms that only require you to fill in blanks about who is getting what. Because they are public, they are quickly accepted by courts of law, though not all states will have them.^[3]
• Personal Wills: You can write your own will, though you need to be very specific about what is going where to avoid complications. You will need 2 witnesses to sign as well. There is also software that can help you write the will.^[4]
• Working with a Lawyer: Your safest bet when writing a will is to hire a lawyer. They can answer questions, help avoid pitfalls, and defend your intentions after you die. Simple wills cost anywhere from a few hundred to a thousand dollars.^[5]

Name an executor. The executor is the person in charge of your estate after you've died. That's the person who will likely be in full control of your assets. The executor needs to be named in your will and you should consider assigning an alternate in case your first choice is unable to help. Talk to the person you have in mind before you die to make sure he or she is okay with the responsibility, then send the executor a sealed copy of the will when it is finished.

• Spouses are most commonly named executors, as they are familiar with the estate.
• Trusted friends and family members make good executors.
• If you do not name an executor one will be court appointed, which could lead to executor expenses for your family.^[6]

Name guardians for children under the age of 18. To avoid dragging any minor children through the courts, it's best to name a guardian for minor children in the will. Make sure you talk to the person first to make sure he or she is okay with the potential responsibilities of caring for you children.

• You should similarly account for any of your pets.^[7]

Create an inventory, or account, of the estate for distribution to heirs. The inventory should contain a list of all of your debts and assets, the approximate value of each, whether the assets will pass directly to a new owner, and a total debt and asset value. The list may need to be formal, delivered to the heirs in a specific form or manner, and/or filed with the court. Check your state’s probate code or check with your attorney to determine if the inventory should be filed with the Court and how it should be distributed to the heirs. For now, simply create the list so you know what needs to be distributed in your will.

• Assets are anything that can be sold for money. Debts are bills, loans, or expenses that need to be paid after your death.
• The value of real estate listed on the inventory should be the most recently appraised value. Consult an attorney or a certified public accountant to determine if a formal appraisal is required in your state.
• Personal property values listed on the inventory are calculated based on current market value by agreement of the heirs, or appraisal of the personal property by a licensed appraiser.

Decide how to pass down your assets. This is the major headache in a will, but it is incredibly important to prevent disputes after your death. Next to each asset listed, note who will receive the asset after your death. Make sure you are detailed and specific -- sometimes the biggest fights are over the smallest things, like a sentimental lamp or piece of jewelry.^[8]

• You can also "lump" things together with phrases like "all of my furniture and household objects will be given to my son, Thomas Kitchener."

Decide how your heirs should pay off your debts. Account for the money you still owe and make sure it can be paid without expense to your heirs. This may require selling off assets, such as noting to "sell my house and use the money to pay off any outstanding mortgage payments," or noting an account that should be used for payment, such as an unused retirement account.

Create a backup plan within your will. Some things will, without a doubt, fall through the cracks as you plan your will. If you do not have something accounted for in your will then it will be up to the state to distribute it. The easiest way to avoid this is with a backup clause, something along the lines of: "all other assets will be placed in the care of my husband, Steven Johnson."

• Wills are commonly used as a backup to a trust fund, providing insurance and legal background in the case of a dispute.^[9]

Check the beneficiary lists of your retirement accounts. If you have any investment, retirement, or bank accounts that list who will receive the money in case of your death (beneficiaries), this name will take precedence over your will. Call the customer service team of each account and make sure your listed beneficiary is who you want it to be.^[10]

• This applies to life insurance policies and annuities as well.

Specify your end of life plans in case you cannot make your wishes known. A living will can assign a caretaker or decision-maker in the event you cannot make a decision due to mental or physical incapacitation. There are three main parts of end of life care documentation:

• Living Will: Outlines treatment you wish to receive or wish to forgo, and under which conditions.^[11]
• Power of Attorney: Designates someone to make health-care choices for you when you are no longer able.^[12]
• Letter of Instruction: Outlines specific end of life instructions, phone numbers and information for bank accounts or insurance, and basic instructions for your family after you've passed. This is not a replacement for a will, but can help in the days immediately after you pass.^[13]

Make your funeral arrangements in advance. Funerals are one of the largest single-sum expenses a family will ever pay, ranging from $4,000-6,000. Save your family the hassle by making arrangements ahead of time with a funeral parlor, or by writing down your burial wishes and a maximum cost. If you decide to pre-plan your funeral, make sure you sign a "fixed cost" agreement to prevent the funeral parlor from passing on unexpected costs to your relatives.

Consider creating a trust to avoid public records. Wills are publicly filed documents that necessarily involve a court of law. Trusts, however, are private, allowing you to distribute your estate over time to whomever you chose. They are generally used for estates larger than half a million dollars, or to hold onto assets until a beneficiary (the person receiving the trust) comes of age. Setting up a living trust may help you distribute your assets without court interference.^[14]

• A trustee is the person who holds on to your assets until they are ready to be passed on.
• Trusts allow you to put conditions on your gifts, such as "she inherits it after turning 18," or "only inheritable after all debts are paid."^[15]
• You will likely need an estate lawyer to help you set up a trust fund.