While a will is one of the most important estate planning documents you can have, there are things that it won’t cover. Your will is just one part of a comprehensive estate plan.
A last will and testament is a legally-binding statement directing who will receive your property at your death. It is also the way you appoint a legal representative to carry out your bequests. Without one, your estate is distributed according to state law, rather than your wishes. Property distributed via the will goes through probate, which is the formal process through which a court determines how to distribute your property.
BUT DID YOU KNOW THAT ONE’S WILL DOES NOT TRANSFER ALL OF ONE’S PROPERTY ON DEATH? The following are examples of property you can’t distribute through a will:
- Jointly held property. Property that is co-owned by a married couple, or that’s co-owned with another as joint tenants with rights of survivorship, is not distributed through your will. If one joint tenant dies, his or her interest immediately ceases to exist and the other joint tenant owns the entire property.
- Property in trust. If you place property into a trust, the property passes to the beneficiaries of the trust, not according to your will.
- Life insurance. Life insurance passes to the beneficiary you name in the life insurance policy and isn’t affected by your will.
- Retirement plan. Similar to life insurance, money in a retirement account (e.g., an IRA or 401(k)) passes to the named beneficiary. Under federal law, a surviving spouse is usually the automatic beneficiary of a 401(k), although there are some exceptions. With an IRA, you can name your preferred beneficiary.
- Investments in transfer on death accounts. Some stocks and bonds are held in accounts that transfer on death to a named beneficiary. These accounts will bypass probate and go directly to the beneficiary. Never designate securities as transferable on death to named beneficiaries without first consulting your attorney.
In addition to not being able to transfer certain types of property with a will, there are other things that you cannot use your will for. The following are examples of items that should not be included in the will:
- Funeral instructions. A will is not the best place to put your funeral instructions. Wills are often not found until days or weeks after death. It is better to leave a separate letter of instruction that is located in an easily accessible location.
- A provision for a child with special needs. If you are leaving money to a child with special needs, a will is not the best instrument. Receiving an inheritance directly can make the child ineligible for benefits. It is usually better to set up a special needs trust to provide for the child.
- A provision for a pet. You cannot leave money directly to a pet in a will. You can name a caregiver for a pet and provide money to them to care for the pet, but the caregiver is not legally obligated to use the money on the pet. A pet trust is the most secure way to provide for a pet.
- Certain conditions on gifts. You may be tempted to make gifts conditional on the recipient’s behavior or actions. However, there are certain conditions that are not allowed. The condition cannot be illegal, and the gift cannot be contingent on the marriage, divorce, or change of religion of the heir.
A will is not the only component of an estate plan. Contact Vasiliadis Pappas Associates to learn more about your options and other measures to protect yourself.