Your Will: Will It or Won't It?

Succession Planning

 Ben Schwartz By: Ben Schwartz

It is commonly thought that the transfer of wealth upon someone’s death is largely, or even exclusively, dictated by that person’s document known as a Last Will & Testament, or simply, Will. In fact, the term “Will” is often used synonymously with one’s estate plan. Because of this, people too often believe their affairs are appropriately in order, just because they possess this document. 

The truth, however, is that Wills don’t have quite that level of importance or power.

Here’s what your will won’t accomplish…

Your Will Won’t Avoid Probate

Probate is a court that determines how certain assets are distributed upon death.  Assets that are transferred to an heir via a Will must first go through the process of being reviewed by the probate court system.  This is important to know because probate is a less-than-ideal process for a number of reasons.  Namely, probate can be both time-consuming and expensive, and the court records are available for all of the public eye to see, so your assets will not transfer in privacy. 

Fortunately, probate is generally avoidable—but only if you take measures beyond having a Will.  For example, you might set up a Revocable Trust, which is another type of estate document, to own your assets. Or, you can simply add beneficiary designations or TODs (transfer on death) to the assets that allow for it.

Your Will Won’t Supersede Beneficiary Designations 

If you have designated a beneficiary of a particular asset (life insurance policy, retirement account, etc.), the asset will pass to the named beneficiary regardless of what your Will states.

This is generally for the better because, as previously mentioned, assets that flow via beneficiary will do so seamlessly outside the confines of the court system.

Your Will Won’t Necessarily Protect Your Assets

Even if your heirs inherit certain assets per the instructions of your Will, those assets could still be seized creditors, spouses, and anyone else with legal authority. 

 Fortunately, asset protection can generally be achieved by adding testamentary trust language in your Will, or more commonly, having a Revocable Trust that includes “Lifetime Trust” provisions.

What Are Wills Good for, Then?

In the U.S., Wills are no longer the prevailing mechanism for transferring your estate—but that doesn’t mean they aren’t important.  Here’s why you still need a Will…

  • If you have young children, the Will establishes guardian provision for them.

No one ever likes to think about perishing while having young children, but if such a tragic event were to occur, your Will spells out who would then become their legal guardians.

  • Wills are a necessary complement to a Trust.

Trusts are great.  They allow for a probate-free specific flow of assets upon your passing, among many other benefits.  But what if you fail to designate the Trust as the owner or beneficiary of an asset while you’re alive?  The Will steps in with its “pour-over provision” which basically states that all assets unaccounted for will “pour” into the trust. 

  • Even if you don’t have a Trust, Wills are a great safety net for any asset to which you failed to designate a beneficiary or TOD.

Sure, that asset would need to go through probate, but at least your Will is going to dictate who receives the asset.  Otherwise, the state would be the one to decide.

In summary, a Will is crucial, particularly if you have young children or if you have a Trust. It’s just important to know what it can and can’t do. If you have any questions, please don’t hesitate to contact your Wealth Manager.

Key Takeaways

  1. Even if you do not have young children or a Trust, then having a Will could come in handy if you happen to not designate a beneficiary or TOD to an asset.
  2. Avoiding probate is very important, and it can be done if your estate plan is in proper order.
  3. Wills should never be used in lieu of beneficiary and TOD designations. Do not assume that because you have a Will you shouldn’t need to add beneficiary designations to your retirement accounts, life insurance policies, etc. 
  4. If you wish to have asset protection for your heirs after your death, consider having a Revocable Trust drafted where the beneficiaries inherit the assets in trust instead of receiving them outright.
Plancorp does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors.

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Ben brought with him several years of experience in investment management and financial planning when he arrived at Plancorp in 2013. Ben’s immersion in the industry gives him the insight necessary to determine customized and thoughtful solutions for each of his clients. More »

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