Virtually everyone is familiar with the concept of a will. We have all seen the movie “Trading Places,” and know of the dramatic reading of the will after someone passes. However, a will can be limited in its ability to do all things. A will is simply a document that instructs the probate court how to distribute your possessions/assets that have not already been pre-determined by ownership designation or beneficiary.
That last statement bears repeating, as it is often misinterpreted. There are two instances that supersede the instructions of the will: beneficiary designation and joint ownership. Whenever a beneficiary is named on an account (think IRAs, company retirement plans, annuities, life insurance proceeds), those assets will be distributed according to that beneficiary designation — regardless of what the will states. That means that while my will might state that my IRA goes to my sister Lori, if the named beneficiary is my cousin Bo, guess who is happy to see me croak? You got it, party at Bo’s house! This means that it is important to revisit named beneficiaries on various accounts to make sure they are still appropriate.
The other instance where a will is ineffective is joint ownership. An account owned jointly in this manner immediately goes to the surviving owner at the first owner’s death — regardless of what the will states. So if my Raymond James account is jointly owned with rights of survivorship with my sister, but my will states that I wish to leave those assets to my cousin, in this case, my sister gets the account and thus the party then moves to her.
Then there is the issue of probate. Judging from the horrific sound in clients’ voices when they speak of probate, I believe there is a misconception of what it actually is.
Probate is simply the official opening of a deceased person’s estate with the court and the reading of (and subsequent distribution from) the will. Many folks have sought the advice of estate attorneys to draw up living trusts as a way to avoid probate hassle and expense. However, many estates are not complex enough to need such measures. The fact is, the probate process is not as arcane or as costly as many people think.
I have found the cost of some living trusts to be as much or more than the actual probate process they seek to avoid. If a client has properly named beneficiaries on all accounts and perhaps some joint property, the truth is, relatively few assets may actually need to be probated. I do support using living trusts for certain reasons, the key is having the right conversation with your financial advisor and estate attorney before you make things unnecessarily complicated.