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What a Will Does NOT Cover
- February 2021
- While a will is one of the most important estate planning documents you can have, there are things that it won’t cover. A will is just one part of a comprehensive estate plan.
A will is a legally-binding document directing who will receive your property at your passing. It is also the way you appoint a legal representative to carry out your bequests. Without a will, your estate is distributed according to state law, rather than your wishes. Property distributed via a will goes through probate, which is the formal process through which a court validates your will and determines how to distribute your property.
Although a will is one main way to transfer property upon death, it does not cover all assets. The following are examples of assets that a will would not govern:
‣ Jointly held property. Property that is owned in joint tenancy with another person is not distributed through your will. Joint tenants each have an equal ownership interest in the property. If one joint tenant dies, his or her interest immediately ceases to exist and the other joint tenant owns the entire property.
‣ Property in a trust. If you place property into a trust, the property passes to the beneficiaries of the trust, not according to your will.
‣ Pay-on-death accounts with a named beneficiary. With a pay-on-death account, the account owner names a beneficiary (or beneficiaries) to whom the account assets pass to automatically when the owner dies.
‣ Life insurance with a named beneficiary. Life insurance passes to the beneficiary you name in the life insurance policy and will not be affected by your will if you have named a beneficiary for the policy.
‣ Retirement plan with a named beneficiary. Similar to life insurance, money in a retirement account (i.e., 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.
‣ Investment accounts with a transfer on death named beneficiary. 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.
In addition to not being able to transfer certain types of assets with a will, there are other things that you cannot use a will for. The following are examples of items that should not be included in a 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.
‣ 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. To make sure your estate plan covers all your needs, speak with an attorney here at Peak Estate Planning.