MINI WILLS
In Part 1 it was explained how everyone has a will. One is either done by the person or defaults to the generic will provided by the State of residence. These wills take care of assets and liabilities that are owned in single or individual name at the time of death.
It is quite likely that you have already established what can be called “mini wills” by the way you have titled ownership of the account or asset. The manner of ownership can have the same effect as a will. It can direct the disposition the same way as a will without Probate.
Types of “Mini Wills”:
Joint Account With Rights of Survivorship
At the death of one of the owners, this account will transfer ownership to the other owner. This can usually be accomplished by providing a certified death certificate to the institution where the account is held. This type can also re-title real estate into the survivor’s name in the same way.
Tenants BY Entirety
This is an account owned jointly by a husband and wife. In some states this account may offer certain creditor protection but at death it functions the same as a regular joint account and transfers ownership to the surviving spouse. Again, this can be done simply by the presentation of a certified death certificate to the custodian holding the asset.
Tenants In Common
This is a joint account that does Not function like the regular joint accounts. This account type treats the ownership as separate parts. It is usually assumed that the ownership is 50/50 unless there is other documentation to change the percentage allocation. Unlike the other joint account, at death the account does not automatically go to the other owner. In fact, you can devise your part to your estate to be distributed under your will.
Transfer On Death
This type of account allows you to name a beneficiary for the account and functions just like a will The beneficiary will need to provide a certified death certificate to claim the account.
Life Insurance
You can name one or more beneficiaries to the policy. At death, they can claim the proceeds. There are primary beneficiaries and you can plan ahead by naming contingent beneficiaries in the event a primary beneficiary happens to die during the policy period. You can also name your Estate as the beneficiary in which case the proceeds will go thru probate using your will. You can also name a Trust as the beneficiary. There could be advantages with either depending on your circumstances.
Pension
You can name beneficiaries for your pension plan similar to a life insurance policy. At death, they will receive the proceeds. However, there are ways for them to continue the plan under certain circumstances. The surviving spouse or children can use an IRA Rollover to do this. There could be tax advantages to this action. However, the plan can not continue as their direct pension plan in that they cannot make new pension contributions to it. You can also name your estate to allow the disposition under your will or name a Trust to receive and distribute the assets. There are tax ramifications with all these options. Be aware that if you are married you must have your spouse as your primary beneficiary unless the spouse waives their interest. There is a place in the plan documents for a spouse to sign if they were to give up their interest. This would need to be carefully considered.
Trusts
These legal instruments function like a will and can add some extra features to your plan. They will be covered in a subsequent article.
If you have charitable intentions, you can name one or more of your charities as beneficiaries with some types of accounts, but not as co owners of accounts. There are also ways to make a donation to a charity that can give you tax advantages and income streams. This is a more complex estate plan and will be covered later.
If not planned correctly, the use of these “mini wills” can create unintentional problems that may conflict with your overall plan. For instance, a surviving spouse spouse may want to leave her estate equally to her children. However, for protection and convenience she decides to have a joint bank account with one of her children who may live close by and can help in an emergency. Upon her death, the child who is joint owner of the bank account will inherit that entire account and then will also receive their equal share of the rest of the estate. That would leave that child with a greater portion of all the assets compared with the siblings. Another example may be naming someone as the beneficiary to a pension plan assuming a certain value will then be inherited by them. However, if there is a significant change in the financial markets that amount could be much higher or lower leaving that beneficiary with a disproportionate amount than originally expected. There can also be liability claims that can affect some of your assets but not others.
It can be easy to get confused with various assets in different names. it is extremely important that they all blend together in the overall plan. Review all accounts now to see if they accomplish your intentions and then review them when you set up a new account or make other changes. You will probably need to review them if your circumstances change and indicate changes in the ownership of your assets.
It is best to confer with an Adviser or Attorney or Certified Public Accountant in these matters.
Note: You may want to also read a previous post about estate planning with young children.