A will is one of the most basic and essential estate documents, but do wills have limits? Yes, because there are many laws and documents that govern how your assets may be transferred, regardless of what is contained in your will.
Retirement accounts
Usually, the beneficiaries named on 401(k)s, individual retirement accounts and pensions are entitled to those assets despite what is contained in a will. These accounts may pass on to beneficiaries without undergoing probate.
Estate planning should address these accounts and other assets that pass on to beneficiaries. Otherwise, there may be unwanted situations where a former spouse named on an account receives its assets even though your will names your current wife as a sole or major heir. Also, default terms in these accounts could determine who receives its assets if no contingent beneficiaries are named.
Life insurance
You should ensure that your beneficiaries listed on your life insurance policy are current because its proceeds may go to that beneficiary regardless of what is contained in your will. This is also important because divorce agreements may require that a former spouse receive insurance proceeds to ensure that spousal or child support payments continue if the payer dies.
Bank accounts
Wills have limits when it comes to accounts titled as transfer on death, payable on death, or joint tenancy with right of survivorship, which usually override a will. Account signature cards usually show if any of these designations apply.
Real estate
Property automatically passes to a surviving spouse if the couple owns their home jointly with survivorship rights.
Trusts
Trusts are not governed by wills and their assets do not pass-through probate. After a trust is created, however, accounts should be retitled, and beneficiaries changed to assure that assets intended for the trust end up in it.
Under the 2019 Secure Act, most trusts cannot draw out IRA distributions over decades. Usually, these distributions should be paid out within 10 years.
Planning
To help assure assets go to intended beneficiaries, it is important to complete beneficiary forms completely and provide their full names, Social Security numbers and their relationship to you. If there are multiple beneficiaries, be sure to specify the percentage of the allocation and that it adds up to 100 percent.
Be sure to identify beneficiaries properly. Contingent beneficiaries do not receive assets if the primary beneficiaries are alive.
Accounts should be reviewed after marriage, divorce, death of a beneficiary, birth, or other life events. The filing of annual tax returns is a good time to review beneficiaries.
Attorneys can assist you with these and other estate matters. They can help ensure that your intentions are followed.
