What a Will Can and Cannot Do - Understanding the Limitations of this Important Document
By Don Drake, Connelly Law Offices, Ltd.
"A will is a crucial legal document that outlines your final wishes regarding the distribution of your property and assets after your passing," said professional fiduciary and certified elder law Attorney RJ Connelly III. "It is an integral part of a comprehensive estate plan. If you die without a will, your assets and property will be distributed by the state according to intestacy laws. This may lead to an outcome that is not in line with your desires."
Creating a will provides you with the opportunity to appoint a legal representative or executor who will be responsible for carrying out your bequests and ensuring that your assets are distributed as per your instructions. Additionally, you can name a guardian for your children in case of your untimely demise.
"Fewer than half of adults living in the United States report having a will, even though some of them may have a comprehensive estate plan that covers them in other ways," said Attorney Connelly. "This is a concerning statistic because, without a will, the state will decide who gets your assets, which may not align with your wishes."
Unfortunately, just creating a will is not enough, you also need to understand what it can and cannot do. Even when you have a will, there may be misunderstandings about its provisions and limitations. If you opt for an online site to create a will, it may not take into consideration special circumstances and state differences, which could lead to complications. Therefore, it is advisable to consult an attorney who specializes in elder law to ensure that your will is comprehensive and legally binding.
Property and a Will
Although a will can be used to transfer property after death, it does not cover all types of property. Certain classes of property are not distributable through a will:
1. Property held in trust
In estate planning, a trust is a legal entity that holds property for the benefit of designated beneficiaries. The trust is managed by a trustee who is responsible for administering the trust according to its terms. The trust will have named beneficiaries who will receive the trust's property according to the trust terms and not based on what is in your will (unless specifically stated in the trust). This means that assets placed in a trust will be distributed according to the trust's provisions rather than through probate court, as is the case with a will. Trusts can be a valuable tool in ensuring that your assets are distributed according to your wishes and can help avoid the costs and delays associated with probate.
2. Pay on death accounts
Informally known as Payable on Death (POD) accounts, they are a type of bank account that allows the account holder to name one or more beneficiaries who will inherit the funds in the account upon the account owner's death. These beneficiaries can be individuals or organizations and are designated by the account owner at the time the account is opened or later on. POD accounts are a popular way to avoid probate and ensure that the assets in the account pass directly to the beneficiary(s) without the need for a court order. Additionally, POD accounts are FDIC-insured up to the maximum allowed by law, making them a secure option for those who want to pass on their assets to their loved ones.
3. Life Insurance
When you pass away, the benefits from your life insurance policy will be transferred directly to the beneficiary or beneficiaries you have named in the policy. It’s important to note that these benefits are not subject to the terms of your will. This means that even if your will specifies a different distribution of assets, the life insurance benefits will be paid out according to the beneficiaries named in the policy. It’s also worth noting that you can change your beneficiaries at any time, which can be helpful if your circumstances or relationships change over time.
4. Jointly held property
When you co-own a property with another person as joint tenants, it means that both of you have an equal ownership interest in the property. This means that you both have an equal right to occupy and use the property as you wish. However, it's important to note that when one joint tenant dies, their interest in the property ceases to exist. This means that the other joint tenant now fully owns the entire property. In other words, the property will not be distributed through your will, as it automatically passes to the surviving joint tenant. It's important to keep this in mind when making estate planning decisions and deciding how your assets should be distributed after your death.
5. Retirement plans
Similar to how life insurance works, the money in your individual retirement account (IRA) or company-sponsored 401(k) plan is transferable to the person or persons you specify as beneficiary or beneficiaries. It's important to note that under federal law, a surviving spouse is usually the default beneficiary of a 401(k), although there are some circumstances where this may not be the case. On the other hand, an IRA allows you to specifically designate who you want to inherit your account by naming one or more individuals as your beneficiaries. This offers you greater control and flexibility when it comes to distributing your assets to your loved ones after you pass away.
6. Investments in transfer on death accounts
Certain types of financial accounts, which hold both stocks and bonds, can be designated so that in the event of the account holder's death, ownership of the account will be automatically transferred to the named beneficiary or beneficiaries. These types of accounts, known as transfer-on-death accounts, operate similarly to payable-on-death accounts, in that they bypass probate and allow for a more streamlined transfer of assets to the intended recipient(s). This can be a helpful estate planning tool for those looking to simplify the transfer of assets to their heirs.
Some Myths About Wills
Attorney Connelly warns that many people hold certain beliefs about wills that are simply not true. These misconceptions are often perpetuated by various sources, including online searches, television shows, and movies that offer so-called financial advice. While some of these myths contain a kernel of truth, they often contain false information that is added as stories are shared from person to person. With so much at stake when it comes to probate, it is critical to rely on accurate information when making decisions. So, it's important to review some of these false beliefs so that individuals can make informed decisions and safeguard their assets. Let's review some major myths:
1. A will allows you to avoid probate. NOT TRUE
When a person passes away, their will must go through the probate process for their beneficiaries to inherit their property. Going through probate means that everything associated with the will, including the property the person owned and the identity of their beneficiaries, becomes part of the public record. This means that anyone can access this information, which can sometimes lead to family disputes and other issues. It is important for individuals to consider these aspects of the probate process when creating their estate plan to ensure that their wishes are carried out in the way they intend and avoid family squabbles and long, drawn-out litigation.
2. Funeral Instructions Must Be in Your Will. NOT TRUE
It's a sad reality that sometimes a person's funeral or memorial service may take place before their will is found and read. This can take days, weeks, or even longer, leaving your family in the dark about your final wishes. If having a proper funeral or memorial service is important to you, it's best to plan with a reputable funeral home. By doing so, you can ensure that your wishes are not only known but carried out according to your instructions. Leaving written instructions with your family is also a good idea as it can serve as an additional guide to help them navigate the challenging time after your passing.
3. You Can Leave Money Directly to a Pet. NOT TRUE
It's important to understand that in the eyes of the law, an animal cannot inherit money or property. This means that if you want to ensure your beloved pets are taken care of after you pass away, you must make arrangements in advance. One option is to leave money to a trusted person who is willing to take on the responsibility of caring for your animals. This person will then be able to legally inherit your pets as they are considered property.
Another option is to set up a pet trust or a pet protection agreement. These legal documents allow you to provide for your pets' care by naming a trustee who will manage the funds you set aside for their benefit. You can specify the type and quality of care you wish your pets to receive, and the trustee will be legally obligated to follow your instructions.
Remember, animals are not able to advocate for themselves, and it's up to you to ensure their safety and well-being even after you're gone. By making proper arrangements, you can have peace of mind that your pets will be cared for and loved, even when you're no longer able to be there for them.
4. Provisions for a child on government benefits are best in a trust. TRUE
If you have a child with special needs or a child who is receiving government benefits, it is important to create a special needs trust to ensure their financial security. This type of trust can hold money for your child's care without affecting their eligibility for government benefits.
A special needs trust allows you to set aside funds for your child's future expenses, such as medical bills, education costs, and other essential needs. The trust can be managed by a trustee, who will be responsible for ensuring that the funds are used for your child's benefit.
To create a special needs trust, it is recommended to seek the assistance of a qualified attorney who has experience in this area. They can help you understand your options and make informed decisions about the best way to set up the trust.
If you are interested in learning more about special needs trusts and how they can benefit your child, check out our blog on the topic. Our blog provides valuable information and resources on this important topic.
"A will is an essential component of estate planning," explained Attorney Connelly. "However, it is also important to be aware of its limitations and explore other options available to you. To fully protect your assets and provide for your loved ones, you may need to consider creating trusts, setting up pay-on-death accounts, and naming beneficiaries on all accounts that allow for it, among other legal and fiduciary strategies that can be explored."
At Connelly Law, our experienced and professional staff is committed to helping you understand all your options and develop a comprehensive estate plan that meets your unique needs and goals. Contact us today to learn more about how we can assist you in planning for today and for the future.