A will is an important piece of a comprehensive estate plan. It is a legally binding document which states who will receive your assets after your death, and who you would like to nominate to oversee those distributions. If you die without a will, the default state law, called the intestate law, will control how your assets are distributed. Sometimes, the intestate law is at odds with your wishes. There is no doubt that having a will is important; however, there are some limitations you should be aware of.
Although a will can be the primary mechanism to transfer property at death, it does not cover all property situations. Some classes of property you are unable to distribute through a will are:
- Pay on death or transfer on death accounts – Informally known as PODs or TODs, the original account owner names a beneficiary(s) to whom the assets in the account pass automatically upon the owner's death.
- Life Insurance – Life insurance benefits pass to your named beneficiary(s) in the life insurance policy and are not affected by your will.
- Jointly held property – Co-owned property is not distributed through your will. Joint tenants have an equal ownership interest in the property, and when one joint tenant dies, their interest ceases to exist. The other joint tenant now fully owns the entire property. There are different types of legal joint ownership in real estate. An interest with a right of survivorship will pass to the surviving owner, but a tenant in common interest will be governed by the will.
- Retirement plans – In a similar manner to life insurance, money in an IRA, 401(k) or other type of retirement account, passes to the named beneficiary(s). According to federal law, a surviving spouse is generally the automatic beneficiary of a 401(k); however, there are some exceptions.
A will does not allow you to avoid probate. By necessity, a will must go through the probate process in order to allow beneficiaries to inherit property. It typically takes 8 to 12 months to get through the probate process, and it involves expenses like an attorney, commissions, and court fees. Probate is also a public process. Your will and everything associated with it (property you own, who your beneficiaries are, etc.) becomes part of the public record that anyone can access.
Keep funeral instructions outside of your will. The reality is your funeral may have already taken place before someone finds and reads your will, which can take days, even weeks. If your funeral or memorial service is important to you, the best way to help your family is to pre-plan, making arrangements with a funeral home. You can also leave written instructions as to your plans.
Your pets cannot inherit through your will. An animal is legally unable to inherit money or property from you. If you want your pets to be cared for after you die, leave money to a person willing to take care of your animals. The person you select can inherit your pets since a pet is considered property. You can also set up a pet trust or a pet protection agreement, either of which provides for your pet's care.
Provisions for a child on government benefits are best in a trust. It is best to create a special needs trust to provide for a child or loved one with special needs or who is receiving government benefits. The trust is created to house money for your loved one’s care without affecting those benefits.
Your will is an important component of a comprehensive estate plan, but it can't do everything. There are ways to circumvent the limitations of a will by utilizing a combination of trusts, and ensuring beneficiary designations are up to date.
Schedule an initial consultation to discuss the pros and cons of having a will and other options available to you as part of your overall estate plan.