PLANNING AHEAD: Reasons why a will is not enough for an estate plan [Column]

With the beginning of the new year, many readers may be looking to redraft their wills executed years ago or starting out to review their estate plans generally.  Having attended several programs over time and drafted many estate plans, I know the emphasis has almost always been on explaining wills. Today it is most often more likely that sizeable assets will transfer outside the will even where there is no living trust at issue. It is important to know how this happens and what to do to prepare. Also the person making the will needs to hold on to and preserve important documents that, in many cases, are more important than a will.

How Assets Are Transferred on Death

If I were asked what is the biggest mistake people make when arriving at an estate plan, I would say it is the belief that an estate plan is only a will. With this idea in mind often they go online or call a lawyer’s office and give provisions for a will only. This is a huge mistake. Without a full understanding of assets, their estate on their death could be distributed very differently than intended. An estate is more than a will.

Beneficiary Designations for Funds Outside the Will Matter

Life insurance passes by beneficiary designation. Unless the beneficiary designation is the estate, a will is irrelevant to its passage on death. Even more significant is the disposition of funds from an IRA, 401(k) and similar funds referred to as tax qualified funds.

Most of the will makers I meet hold the majority of their assets either in the equity in their homes or in tax qualified funds or both and, since many Americans carry sizeable mortgages on expensive homes, the balance appears to run favorably in the direction of tax qualified (IRA, 401(k)) assets. The beneficiary designations for these funds are critical. If the beneficiary named is your spouse, which it usually is if you are married (and for 401(k) and similar assets your spouse must give written permission to make it otherwise) then the funds do transfer to your spouse on your death. There is not a problem.

A difficulty might arise if you are single, divorced or a widowed and do not specify how you want the funds to be distributed on your passing or, even when you are married, if your spouse dies shortly before you and you have not updated your beneficiary designations. Secondary beneficiaries should be named in case your spouse dies before you since, even if the funds otherwise go to your children equally they would likely have to pass through your estate first.

Beneficiary designations are at least as important if not more so than designations in your will. After you complete your beneficiary designations you should hold on to the paperwork accomplishing this in a safe place, as safe as where you hold your will. On line access might work but many financial institutions are being acquired by others and questions regarding who was named as beneficiary can easily arise.

Titling of Assets Matters — Deeds

Titling also matters. The wording of deeds or not contained in deeds may override what is stated in a will. Here are some examples.

Example No. 1: Widowed or divorced parent wants to add adult child to deed on the house. A deed is drafted in the name of parent and child and recorded at the Recorder of Deeds office. If the deed says “from Mary to Mary and John” without more, then the house is now owned as tenants in common. When one of the co-owners dies the house would not go to the survivor. Instead the survivor would own a one-half undivided share. The other share would go to the decedent’s estate. If Mary wanted John to inherit the house the deed should have said   “from Mary to Mary and John as “joint tenants with right of survivorship.” The key is “with right of survivorship.” Even if John was the only beneficiary of Mary’s will he would need to probate the will to acquire full title. If he was not the only beneficiary it would become more complicated and he would not have full ownership of the property.

Titling of Assets Matters — Bank and Investment Accounts

Bank accounts and investment accounts that are titled jointly go to the survivor regardless what the will says.

Titling and beneficiary designations among other considerations are critical to have a full estate plan.

Janet Colliton, Colliton Elder Law Associates, PC, Certified Elder Law Attorney, limits her practice to elder law, estates, retirement, and special needs planning and administration, and guardianships and is located at 790 East Market St., Suite. 250, West Chester, 610-436-6674, [email protected] She is also, with Jeffrey Jones, CSA, co-founder of Life Transition Services LLC, a service for families with long term care needs.

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