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…
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.
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.
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.
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…
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.
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.
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.