Warning! A will may not control the fate of some of your property. If you’re like most people, this is surprising to you. Your will only controls those assets in your individual name. Here’s what we mean:
1. Joint Tenancy Property: Many married couples own their house as well as their bank and investment accounts as joint tenants. Some single parents put a child’s name on a joint account or the house (not recommended) and some siblings jointly own a vacation home or hunting cabin (not recommended).
Jointly tenancy property has a right of survivorship, meaning that immediately upon the death of one owner, the property transfers to the surviving owner(s). For example, Sam and Suzy are a married couple and they own their house and financial accounts in joint tenancy. Sam dies. Suzy, by operation of law, now owns the house and the financial accounts.
This may not be what Sam wanted, especially if Suzy is a second wife and not the mother of his children. Will Sam’s children inherit any of his hard earned money? Not likely.
What if Sam and his brother, Mike, own a family vacation home as joint tenants? Sam dies, Mike inherits the vacation home. Sam’s widow and children must pay any applicable estate taxes on the vacation home, but don’t own it and have no right to use it. This may not be what Sam wanted.
2. Property in Your Revocable Living Trust: Trust planning is an excellent estate planning tool. When you do trust planning, your trust should be properly funded, meaning that your property is transferred into the name of your trust. Instead of being titled in your individual name or joint names with your spouse, your property is titled in the name of your trust. Therefore, the provisions (i.e. instructions) of your trust control the property.
For example, Sam’s trust provides that his sister, Mary, inherits the $50,000 investment account. Sam’s will says that brother, Tony, inherits this same investment account. Sam dies. Who inherits the investment account? Mary. The investment account is titled in the name of the trust so trust provisions apply. Mary inherits the $50,000 account.
3. Life Insurance and Retirement Accounts: Most people name a beneficiary for their life insurance and retirement accounts. These accounts are contracts. The assets go to whoever is named as the beneficiary. So, Sam names his spouse, Suzy (wife #2), as beneficiary of his life insurance and retirement accounts and, later, executes a will that says that his children, Sam Jr. and Samantha, will inherit the life insurance and retirement accounts. Sam dies. Suzy (wife #2) inherits the both the life insurance and retirement accounts. Sam Jr. and Samantha have no right to any of these monies regardless of what Sam’s will provides.
This is also true of Stocks and Bonds Held in Beneficiary as well as Payable on Death (POD) and Transfer on Death (TOD) Accounts. To change a beneficiary designation, contact your financial advisor or bank. Do not try to change the beneficiary in your will. It absolutely won’t work.
If you have questions about what your will can do and can’t do, consult with an experienced and qualified estate planning attorney.
- Let’s Talk about Trusts…and Taxation - May 17, 2022
- What Estate of Marion Levine Means for Life Insurance - May 15, 2022
- Is It Too Late for Medi-Cal Planning? - May 13, 2022
Leave a Reply
You must be logged in to post a comment.