When A Will Isnt The Way

We all need wills the question is are they enough? How do they work with beneficiaries and jointly held assets? Guarding Your Wealth" is a nationally syndicated weekly personal finance column written by Jeffrey D. Voudrie, CFP. Mr. Voudrie is the president of Legacy Planning Group, a private wealth management firm that employs sophisticated proprietary strategies designed to protect and grow its clients investments. Please visit our website, www.guardingyourwealth.com to read past articles in our archive.

(PRWEB) January 9, 2004 --
Many people have the mistaken impression that their Last Will and Testament will determine what happens to their possessions when they die. As John, a reader in Marysville, TN learned, thats not necessarily true.

Time and time again we are told about the importance of having a Last Will and Testament (Will). Whats a Will?", we ask. It allows you to determine who gets what when you die," is the classic response. So, we come away thinking that by taking the time to draft our Will that we have put our affairs in order. Unfortunately, like most things nowadays, it is not that simple.

When ownership of something you own is based on your Will, that item is said to 'pass through your Will. There is even an elaborate, mandatory legal process involving the courts to ensure that everything is handled just right. This process is called Probate. Most heirs end up using an attorney to navigate the Probate process for them. As a result, Probate normally takes approximately 12 months and can easily cost thousands of dollars.

Many things you own will not 'pass through you Will. Therefore, what youve stated in your Will has no affect on who receives them. The first group of assets that aviod your Will are those that name a beneficiary. Common examples of these assets are life insurance policies, annuities, and retirement accounts.

For instance, I own two large life insurance policies on my life. If I were ever to pass away prematurely, it is important for me that my beautiful wife and four wonderful children would be taken care of financially. When I purchased those life insurance policies I had to decide who would get the money when I died. I named the beneficiaries. Now, if I pass away while those policies are still in force, the beneficiaries I named on that contract are the ones who will get the proceeds, regardless of what my Will says.

In other words, the proceeds of the life insurance policy pass by contract, not by Will. All my beneficiaries have to do is present a certified copy of my death certificate to the insurance company and the money is paid out. No Will. No Probate. No attorneys or courts are involved. The beneficiaries can get the money within a matter of weeks instead of the year it might take if a Will and Probate was involved.

It works the same way with any asset on which you have named a beneficiary. You can control the disposition of many assets this way. Company retirement programs, IRAs, annuities and even bank and brokerage accounts allow you to name a beneficiary. Properly planned, this can be an effective way to distribute assets at your death. By the way, you should avoid naming your 'Estate as the beneficiary on these accounts because that would cause them to pass through your Will and go through the time and expense of Probate.

The second group of assets that are not controlled by your Will are those that will pass by Title. Real Estate and vehicles are a perfect example but this can also apply to bank and brokerage accounts. Its common for most couples to own their assets jointly. Technically, this is called 'Joint Tenants With Rights Of Survivorship. When one spouse passes away, that asset passes by title and becomes the property of the other spouse. Since your Will is not involved, Probate is avoided.

Youre not out of the woods yet, though, because unless the surviving spouse names someone else as co-owner of the asset, it will pass through the surviving spouses Will at their death and have to go through Probate then. Add the name of a child to the asset" you might say, thinking that would solve the problem. But its not that simple because that would constitute a gift in the eyes of the IRS and you or your child could needlessly end up paying tens of thousands of dollars in taxes. Which brings us to the third way to transfer assets without a Will and Probate.

Assets owned by a trust do not pass according to your Will and thus avoid Probate as well. The most common type of trust is a Revocable Living Trust. AARP estimates that 25% of people over the age of 50 utilize a Living Trust in planning their estates. When you set up a trust, you decide whom you want to receive what. You then title assets such as bank and brokerage accounts, vehicles and real estate in the name of the trust. A trust can be the beneficiary of your life insurance policies. It is also easy for personal property to be owned by a trust. Properly funded, a Living Trust can allow someone to avoid Probate altogether.

(Warning: Dont put your retirement accounts in the name of your trust. Dont make your trust the beneficiary of your pre-tax accounts (company retirement plans, IRAs). Doing either will cause them to become taxable.)

It is only assets that dont have a named beneficiary, that dont pass by title and that are not owned by a trust that pass through your Last Will and Testament. So instead of being the main document that determines the distribution of your estate, it ends up be the last.

Everyone should have a Last Will and Testament. You need to make sure that you coordinate your desires between your Will, your beneficiary designations and the ownership of your assets. Otherwise, your wishes may not be carried out.

If you have a specific question or would like more information give me a call toll-free at 1-877-827-1463 or go to www.guardingyourwealth.com. You can also reach me by email at jeff@guardingyourwealth.com. I will be happy to help you in any way I can.
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