While a will is one of the most important estate planning documents you can have, it only deals with what happens after your death. A comprehensive estate plan also protects you and your family while alive. A will only achieves a small part of common estate planning goals.
What is the Purpose of a Will?
A will is a legally binding statement directing who will receive your property at your death. It is also the way you appoint a legal representative to carry out your bequests and name a guardian for your children. Without a will, your estate is distributed according to state law rather than your wishes. Property distributed from a will goes through probate, which is the formal court process to validate a will and determine how and who will distribute the property.
Although a will is one main way to transfer property on death, it does not cover all property.
Examples of Property You Can’t Distribute Through a Will
- Jointly held property. Property that is co-owned with another person is not distributed through your will. Joint tenants each have an equal ownership interest in the property. If one joint tenant dies, their interest immediately ceases to exist, and the other joint tenant owns the entire property.
- Property in trust. If you place property into a trust, the property passes to the beneficiaries of the trust, not according to your will.
- Pay on death accounts. With a pay-on-death account, the account owner names a beneficiary (or beneficiaries) who receive assets automatically when the owner dies.
- Life insurance. Life insurance passes to the beneficiary named in the life insurance policy and isn’t affected by your will.
- Retirement plan. Similar to life insurance, money in a retirement account (e.g., an IRA or 401(k)) passes to the named beneficiary. Under federal law, a surviving spouse is usually the automatic beneficiary of a 401(k), although there are some exceptions. With an IRA, you can name your preferred beneficiary.
- Investments in transfer on death accounts. Some stocks and bonds are held in accounts that transfer on death to a named beneficiary. These accounts will bypass probate and go directly to the beneficiary.
In addition to not being able to transfer certain types of property with a will, there are other things that you can't use a will for.
Examples of Items You Should Not Include in a Will
- Funeral instructions. A will is not the best place to put your funeral instructions. Wills are often not found until days or weeks after death. It is better to leave a separate letter of instruction that is located in an easily accessible location.
- A provision for a child with special needs. If you are leaving money to a child with special needs, a will is not the best instrument. Receiving an inheritance directly can make the child ineligible for benefits. It is usually better to set up a special needs trust to provide for the child.
- A provision for a pet. You can't leave money directly to a pet in a will. You can name a caregiver for a pet and provide money to them to care for the pet, but the caregiver is not legally obligated to use the money for the pet. A pet trust is the most secure way to provide for a pet.
- Certain conditions on gifts. You may be tempted to make gifts conditional on the recipient’s behavior or actions. However, there are certain conditions that are not allowed. The condition cannot be illegal, and the gift cannot be contingent on the marriage, divorce, or change of religion of the heir.
A will is not the only component of an estate plan. To make sure your estate plan covers all your needs, find an estate planning attorney near you.