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What Assets Aren’t Covered By A Will

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If you thought, as I did, that your will would cover the transfer of all your assets, you’d probably be surprised to find out that you’re not entirely correct. While you can spell out who you want to get what, there are many cases in which other contracts or agreements trump the will. I erroneously thought that what you said in your will goes, but in many cases, you don’t actually have any say in how possessions are transferred. Let me use a prime example and you’ll probably understand what I mean.

Your Home

Let’s say you pass away and decide to will your house to your son John Doe, to make up for a lifetime of ridicule because of your poor naming skills. Unfortunately, despite what your will might say, if you co-owned your house in a “joint tenancy with rights of survivorship,” then the other joint owner gets the home. The existing contract you have with the joint owner supersedes your will. This is typically what happens if you own a house with your spouse and in this case the surviving partner gets the home. Now, if you owned the home as “tenants in common,” then you can determine who gets your piece of the house. Again, this makes sense because your will can’t supersede an existing contract, it just wouldn’t be fair. See how simple it is? Here’s another example.

Investment and banking accounts

In most states, your investment and banking accounts (including retirement accounts) go straight to your designated beneficiary, underscoring the importance of specifying one on record with the financial institution. If you were to specify a different person in your will, the laws of the state will specify which takes precedence.

Ultimately, you can specify anything you want but if there’s an existing contract or an easier mechanism for specifying beneficiaries, then you should defer to them instead. While specifying it in the will doesn’t hurt, just know that in some cases the will won’t be able to enforce your desires.

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9 Responses to “What Assets Aren’t Covered By A Will”

  1. In addition to the above, the proceeds of life insurance policies also fall outside the estate. This can be a useful means of defeating challanges to your will.

    On home ownership, it can either be registered as a tenancy in common (in which case, as you have pointed out the survivor gets the whole property on your death) or as joint tenants (in which case the interest of the decedant becomes part of the state).

    Another caveat on the effectiveness of a will is the rights of dependants (usually spouses and children). In some jurisdictions the law gives them rights to at least part of your assets.

    Lastly, there is the question of promises made before death. If someone can show that a decedant made a promise to them and they relied on it, they may be able to override the will.

    Needless to say the legal position varies depending on jurisdiction and it is usually worth checking with both a lawyer and a tax adviser.

  2. Tony says:

    However, not all investment and banking accounts will pass by operation of named beneficiaries in all jurisdictions. In some states only IRA/401k accounts will pass to a named primary/secondary beneficiary outside of your probate estate.

    Also, with regard to a residence, there are additional ways in which the title to the home can pass outside of your probate estate (i.e. will). Specifically, you (James Doe) could have a life estate with your children (John and Jane) as remaindermen, with each of your surviving children to succeed to 1/2 share of the house as tenants in common (or, as joint tenants, etc.)

    The truth of the matter is, this is why people need to consult with professional planners before making estate planning documents. Despite the advent of online self-preparation tools (a la LegalZoom) there is no replacement for the sound advice of a good estate planning attorney and tax adviser.

  3. RCee says:

    You may also want to make sure that both names are on the mortgage. Otherwise when you die, the mortage company could withdraw the mortage and you would have to get a new mortgage, probably at a higher rate.

  4. Frugal Dad says:

    Having a will is one of the most important, and overlooked, things you can do for your loved ones. I usually tell people life insurance and a will are a must if you are married and/or have dependents. Great post!

  5. Llama Money says:

    RCee has a great point. If you’re married, both names should be on everything possible ( mortgage / deed to house, cars, bank accounts, brokerage accts, etc ). That will just keep things a lot less stressful in the event something happens. The surviving spouse doesn’t have to worry about refinancing issues / losing anything major, in the even that you don’t have a will.

  6. Phil says:

    As an amateur will researcher, I can attest to the ease by which it’s easy to put together a will. Literally anyone can do it, and it’s the next best thing to being a legislator, because your will is effectively a new piece of law that is legally binding on your death. I think the two things that keep people from dealing with wills is (1) most people don’t like to think about death; and (2) they think it’s incredibly complicated to formulate a will. Granted, there should be “shalls,” “hereins,” and other such language, but that’s more for completeness in case there’s a question than anything.

    It is absolutely true that if you have, say, a life insurance contract or a 401(k) that those agreements will almost always trump any wills or what not. Besides, when it comes to your will, you don’t really want to be dealing with that stuff — unless you’re making trusts.

    Trusts are a totally different issue, because they do require a bit more lawyerly work than simply throwing some words together. In fact, for me, if I were to die, my wife gets everything, including a tax-free life insurance payment (did you know that life insurance is typically tax-free? Of course, someone has to legitimately die to get it!), and if those proceeds make her entire estate worth more than $500,000, then you deal with a completely different level of legal and tax issue, because you want to avoid the estate tax as well as various other things that can cause such a “legacy” to not be appropriately passed down to heirs and what not. It’s an interesting subject worth researching.

    Back to basic wills. Not only do you absolutely want to state who your “Executor” (or “Personal Representative”) is — they are the legal entity who have the sole authority to dispense with the will’s wishes — but you also want to make sure you take care of your “residuary estate.” Do a search on that sometime, and what you’ll find is that this phrase basically covers anything and everything that you haven’t thought about covering in the rest of your will.

    Also, in my view, while it may take up more verbiage, make sure you feel free to add any other wishes you have to the will. Maybe a “No Contest” clause or specific directions on your funeral or whatever. These kinds of things are not necessarily required, but it is after all not just your last “will of things to be done,” but a “testament of how you want to be remembered.”

  7. ChristianPF says:

    Even with creating a will, you should make sure your beneficiaries are updated on all your accounts and assets are held in joint name (assuming you want it to go to your spouse)

  8. Evan says:

    As an estate planner, for a wealth managment company (J.D.) I can attest that sometimes the WORST thing is to have both names on everything! Due to the Credit Shelter Amount (also known as the exemption amount amongst other things) – you could cause a higher tax on the second death if everything is titled that way.

    If someone replies back with interest, I’d be happy to do an example – but PLEASE DO NOT DO YOUR OWN WILL! PLEASE PLEASE PLEASE DO NOT DO YOUR OWN WILL. It is a horrible idea with disasterous results. That being said, having A will is better than NO will.

  9. Evan says:

    @Phil,

    Life Insurance is received INCOME TAX FREE but not estate tax free unless it is placed inside an Irrevocable Life Insurance Trust (ILIT) or is owned by someone other than the decedent (i.e. your wife)


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