There is no doubt that having a will as part of your estate plan is important. Having a will allows you to appoint a legal representative or executor to carry out your bequests and name a guardian for your children and avoid the state doing so via state law that may be at odds with your wishes. However, a will is just one piece of a successful estate plan. It cannot achieve all of your estate planning goals, and is often paired with other strategies such as trusts in order to do so (for an example of how a trust and a will work together, click here to learn more about “pour-over wills”).
Here as there are some limitations of a will that you should be aware of.
A Will Is Limited In the Types of Property That You Can Transfer Upon Death
Although a will can be a mechanism to transfer property on death, it does not cover all property situations. Some classes of property you are unable to distribute through a will are:
- Property held in trust – A trust will have named beneficiaries who will receive the trust’s property according to the trust terms and not based on what is in your will (unless specifically stated in the trust).
- Pay on death accounts – Informally known as PODs, the original account owner names a beneficiary(s) to whom the assets in the account pass automatically upon the owner’s death.
- Life Insurance – Life insurance benefits pass to your named beneficiary(s) in the life insurance policy and are not affected by your will.
- Jointly held property – Co-owned property is not distributed through your will. Joint tenants have an equal ownership interest in the property, and when one joint tenant dies, their interest ceases to exist. The other joint tenant now fully owns the entire property.
- Retirement plans – In a similar manner to life insurance, money in an IRA or 401(k) passes to the named beneficiary(s). According to federal law, a surviving spouse is generally the automatic beneficiary of a 401(k); however, there are some exceptions. An IRA permits you to name a beneficiary(s).
- Investments in transfer on death accounts – Some accounts holding stocks and bonds will transfer on death to the named beneficiary(s). Like POD accounts, transfer on death accounts bypass probate and go directly to the beneficiary(s).
A Will Does Not Allow You to Avoid Probate.
This is probably one of the biggest misnomers in estate planning. Especially in California where a probate is required even with the existence of a will when the property is valued over a certain amount. In California, those values present a very low bar. For example, a probate will be required if any real estate with a fair market value above $50,000 or if the aggregate value of any other property in a person’s estate totals more than $166,250. It can take months to get through probate, and it involves expenses like an attorney, executor, and court fees. Also, your will and everything associated with it (property you own, who your beneficiaries are, etc.) become part of the public record that anyone can access. That’s why many people in California, especially homeowners, look to alternative strategies such as trusts to supplement their estate planning and avoid probate for their families.
Keep Funeral Instructions Outside of Your Will.
The reality is your funeral may have already taken place before someone finds and reads your will, which can take days, even weeks. If your funeral or memorial service is important to you, the best way to help your family is to pre-plan, making arrangements with a funeral home. You can leave written instructions with the family as to your plans.
Your Pets Cannot Inherit Through Your Will.
An animal is legally unable to inherit money or property from you. If you want your pets to be cared for after you die, leave money to a person willing to take care of your animals. The person you select can inherit your pets since a pet is considered property. You can also set up a pet trust or a pet protection agreement, either of which provides for your pet’s care.
Provisions for a Child on Government Benefits are Best in a Trust.
It is best to create a special needs trust to provide for a child with special needs or a child who is receiving government benefits. The trust can hold money for your child’s care without affecting those benefits.
While your will is an important component of any estate plan, it can’t do everything. The good news is that there are ways to circumvent the limitations of a will so you can create a comprehensive estate plan that will achieve your goals and needs. We would be happy to discuss the pros and cons of having a will and other options available to you as part of your overall estate plan. Please contact us or schedule a meeting to discuss your situation. We are here to help.