You may think that your estate plan should include a will in order to handle the disposition of your assets. That’s true: If you die “intestate,” meaning without a will, some or all of your assets probably will be distributed according to state law.
In reality, though, having a will may have less of an impact on asset disposition than you think. That said, there are still multiple reasons why you should have a will.
Beyond Your Will
An IRA or any other tax-advantaged retirement account will pass to the beneficiary you’ve named. Assuming you have filled out the beneficiary designation form—and you haven’t named your estate as the beneficiary—at your death that account will go to the individual or individuals or trust you’ve selected.
The same principle often applies to assets you own jointly.
Example 1: The principal residence of Walt and Vera Young is titled as joint tenants with right of survivorship (JTWROS). When one spouse dies, the other spouse will inherit the house as surviving co-owner. The outcome will be the same if any combination of people, related or not, own assets as JTWROS.
Similar situations apply to many other types of assets. Annuities and life insurance proceeds go directly to beneficiaries. Payable-on-death bank accounts and transfer-on-death investment accounts pass to beneficiaries as well. In addition, any bank or brokerage or mutual fund accounts held as JTWROS will be owned by the surviving owner or owners after one of the joint tenants dies.
Assets owned as JTWROS or with beneficiary designations won’t be controlled by your will; in fact, an instruction in your will is likely to be ignored when it comes to JTWROS property or assets with a designated beneficiary.
Example 2: Martha Owens and her brother Ned Parker bought a vacation home together when they were young adults. They titled the property as JTWROS and never changed it. At Martha’s death, her will included a bequest of her share of the house to her children, but it didn’t matter. As the surviving co-owner, Ned was the one who inherited it.
Moreover, individuals increasingly are creating revocable trusts to hold assets during their lifetime. When the trust creator dies, assets in the trust will go to recipients under the terms of the trust document. Again, instructions in your will won’t matter.
The message is that you should be careful in your estate planning.
Assets with JTWROS titling, with beneficiary designations or in a revocable trust pass directly to the surviving owners and beneficiaries without the time and expense of going through the probate process. Nevertheless, you still should have a will, even if you believe most of your assets won’t be covered. People rarely have all of their assets titled in such a way that everything will pass outside of probate.
Some personal assets (including vehicles, collectibles and furnishings) probably will be owned outright at your death, rather than as JTWROS or in trust. Those assets should be listed in your will to make sure they wind up with the people or charities of your choice. Also, not all forms of joint ownership will have the same result as JTWROS. Property titled as tenancy in common, for instance, will pass under the terms of a will. Therefore, you should make sure your estate plan is in sync with the way your property is titled.
In your will, you also can name the executor who will wind up your financial affairs. That might include paying outstanding bills, arranging for tax returns to be filed, making the necessary notifications, and so on. If there is no relative or friend likely to perform those tasks effectively, you might name a professional adviser or a financial institution.
Moreover, if you have minor children when you create your will, you can name guardians who will raise them until they come of age, or alternatively, you can name those you wish to exclude.
Copyright © 2015, American Institute of CPAs, New York, NY 10036-8775. All rights reserved.