Will that Fails to Leave to Intended Beneficiaries
January 4, 2016
This edition of the Koldin Report E-Newsletter reviews how your Will can fail to leave bequests to your intended beneficiaries. All previous newsletters can be found on our website by clicking here.
A Last Will and Testament is a document expressing your wishes as to how you want your estate distributed at the time of your death. A Will only applies to those assets which are solely in your own name at the time of your death.
There are many ways to override your Will where your assets are left directly to beneficiaries without passing through your Will. In most situations, people prefer to override their Wills so they can avoid probate.
Making A Will For Intended Beneficiaries
Probate is a judicial proceeding to determine the validity of your Will and to carry out the terms of your Will. The need for judicial involvement can cause delay and unnecessary expense.
One common way that people override their Wills is by adding joint owners to their bank and brokerage accounts. Most joint accounts have survivorship language. This means that when one joint owner dies, the other owner then automatically keeps the entire account.
Another common way that people override their Wills is by adding beneficiaries to their bank and brokerage accounts. These accounts typically have language such as ITF (In Trust For), TOD (Transfer on Death), or POD (Payable on Death). For example, an account could be written, “Tom Jones ITF Mary Jones.” This account would be owned by Tom Jones and on his death, the bank would transfer ownership of the account to Mary Jones.
Examples of Making A Will with Unintended Consequences
Let’s look at 2 examples of how a Will could become an empty promise:
Example 1: Tom Jones has total savings of $125,000 and has a Will that leaves $5,000 to each of his 4 grandchildren and the balance to his 3 children equally. Tom has $25,000 in a joint bank account with his son, Mike. Tom put Mike’s name on the account so that Mike could help him pay his bills. Tom has a brokerage account with $100,000 naming his 3 children as beneficiaries titled “Tom Jones TOD Mary Jones, Mike Jones, Peter Jones.” Tom lives in an apartment and doesn’t own any other assets.
Based on Tom’s Will, his intent is for a total of $20,000 to be distributed to his 4 grandchildren and $105,000 to be divided among his 3 children. In reality, his Will is meaningless. No assets are going to pass through Tom’s Will. Toms’ son, Mike is going to inherit the $20,000 bank account because he is a joint owner. Mary, Mike and Peter are going to inherit the brokerage account because they are designated as beneficiaries on the account. The grandchildren are going to inherit nothing. The grandchildren are cut out despite Tom’s stated intent in his Will because no assets are passing through the Will. Tom’s Will has become an empty promise to the grandchildren and Mike is receiving an extra $20,000 above Tom’s other 2 children because of the Joint Account.
Although people generally desire to avoid probating their Wills, they need to make sure that they avoid the problem of making empty promises in their Wills. Great care needs to be made when using Joint Accounts or designating beneficiaries on accounts.
One solution to avoid probate and make sure all beneficiaries are covered is for Tom to establish either a Revocable Trust or Irrevocable Trust. Instead of making accounts joint or designating beneficiaries on the accounts, he could title the bank and brokerage accounts in the name of his Trust and then designate his beneficiaries in the Trust document. Now, the grandchildren will receive their $20,000, the 3 children will inherit the balance equally, and probate will be avoided.
Example 2: Jill Smith owns a house, $5,000 in a checking account joint with her 3 children, $100,000 in an IRA which designates her 3 children as beneficiaries, and a $200,000 life insurance policy which designates her children as beneficiaries. Her Will leaves the house to her daughter, Meg Smith, $10,000 to her church, $10,000 to her sister, Jane, and the balance to her 3 children.
In this example, the IRA and life insurance are going to be transferred directly to the children on Jill’s death. The checking account will be continue to be owned by her 3 children because they were already joint owners of the account with Jill. None of these assets will pass through the Will. The only asset that is going to pass through the Will is the house which will be left to Meg. The church and Jill’s sister, Jane, are not going to receive their $10,000 bequests because no funds are available to pass through the Will to give to them.
A solution in this case would be for Jill to establish a Revocable or Irrevocable Living Trust and transfer the house to the Trust and designate the Trust as the beneficiary of the life insurance. The beneficiary clause of the Trust would leave the house to Meg and leave the $10,000 bequests to the church and to Jane. The balance would go to Jill’s 3 children. Now the house does not have to go through probate and can be deeded directly from the Trust to Meg without Court costs and delays. By leaving the life insurance to the Trust, there are now funds to be able to pay the church and Jane their $10,000 bequests.
Get Help Making A Will
As can be seen, both Revocable and Irrevocable Trusts can avoid probate and can avoid the problem of Wills being empty promises.
At the Koldin Law Center, P.C. with offices in Syracuse , New York, we have over 50 years of experience helping individuals plan for immediate crisis and long term care. Our attorneys are available to discuss your estate planning options including reviewing your options to establish a Revocable Trust and/or an Irrevocable Trust. Contact us for a free consultation.