August is National “Make-A-Will Month”
by Mike Menninger of Houck & Menninger Law, LLC.
Many folks improperly equate “estate planning” with “writing out a will.” A last will and testament can help with some planning goals, but it has some limitations.
First, the good.
A will lets you direct how your assets are distributed after you pass away. Without a will, your assets would simply be distributed according to the laws of your state, known as the “laws of intestate succession.” The process of intestate succession will completely ignore your wishes because what you “would have wanted” is simply irrelevant to the state without a formal will in place.
With that being said, in most nuclear family dynamics, the laws of intestate succession generally mirror what most people typically do in their wills: everything to a spouse, and if the spouse is predeceased, everything to the children in equal shares. In many cases, having a will and not having a will ends up with the same result, except that a will lets you name an executor.
Even if your wishes regarding your distribution don’t differ from intestate succession, a will is critical when you have minor children. In your will, you can name a trusted person to serve as a guardian to raise and care for your children when you cannot. However, without a will, a court decides who will raise your children, and the court may appoint someone you would not have selected yourself.
A will also allows you to appoint an Executor to handle your estate. Without a will, you may end up with someone you never intended seeking control. But with a will, you decide who will serve and in what order. So, yes, a will is an important document to ensure your wishes are respected after you’ve passed away. But it is important to understand its limitations.
Limitation #1: No planning for incapacity.
Your will does not direct who should manage your affairs should you become incapacitated. Creating durable powers of attorney for finances and healthcare lets you designate the right persons and provide them with sufficient authority and instructions on how to make decisions about your assets, personal affairs, or medical care when you are unable. If you do not have powers of attorney in place, your family may have no choice but to go to probate court to appoint a court-supervised Guardian, which typically means legal fees, court time, and stress that could have been avoided. Not to mention that if you don’t name someone, someone you didn’t want might seek to get control (like with your will).
Limitation #2: Wills don’t cover assets with beneficiary designations.
Wills only direct those assets you own in your sole name (i.e. not jointlyowned assets) that do not have beneficiary designation. Assets such as life insurance, annuities, qualified retirement accounts (e.g. IRAs and 401(k)s), investment accounts, and even bank accounts or real estate, all allow for beneficiary designations to dictate how the asset is to be distributed after the owner dies. In fact, many court cases have determined that an owner’s will is irrelevant if it contradicts what was written on the beneficiary designation form. This is why it’s important to also review your beneficiary designations periodically to ensure they reflect your current goals and circumstances and are not accidentally inconsistent with your will.
Limitation #3: Wills guarantee probate.
Many people are under the impression that having a will helps avoid probate. In fact, the exact opposite is true. If a will is disposing of an asset, the disposition is happening in probate court. If you rely on beneficiary designations on certain assets (see above), or you have jointlyowned assets, those assets will generally avoid probate. But if you rely on a will alone, you are effectively guaranteeing probate. It is for this reason that some individuals utilize a trust as their primary planning document, instead of a will. A revocable trust, done correctly, allows your estate to avoid probate entirely—and the public scrutiny that accompanies it. Trusts can also protect your assets against creditors and other threats while protecting your heirs’ inheritances against creditors, unnecessary taxes, divorce, and even their own poor decisions if they are not yet mature enough to handle an inheritance.
Conclusion
In short, while a will can help you accomplish important goals, additional estate planning tools and strategies are necessary to protect you and your loved ones during incapacity and after you pass away. You have to be willing to think through some difficult scenarios in order to ensure you’ve truly got a comprehensive estate plan, one that makes things clear and simpler for your loved ones. We also recommend frequent reviews and that your plan is update every 5 years. Please consult an estate planning specialist for more details on how to protect yourself and insure your wishes are carried out.
