Wills don’t control joint accounts

Many married couples own bank and brokerage accounts “joint tenants with rights of survivorship”, or “JWROS”. When the first person passes, the joint owner automatically owns the account in their individual name. The deceased owner’s last will does not control those accounts. So, if your last will includes a desire for a charity to receive 10% of your money, or for a good friend or relative to receive something, you and the intended recipient are out of luck, unless your spouse makes a gift of their own volition.

More than a few times, we have heard stories of an elderly parent with several adult children making one child the joint owner of his/her account. They do this for ease of management if they become infirm, not because they want to disinherit the other children. When the parent passes, the child joint owner is legally entitled to 100% of the account. It’s up to the inheriting child to give assets to the siblings who were not joint owners. That can create tension between siblings, and it can impact the gift tax position of the child who made gifts out of the account they inherited. We suggest, instead, that an elderly parent give their child a power of attorney on the account -- not joint ownership.

Wills don’t control retirement accounts

Your company 401k or 403b and your individual retirement accounts (IRAs) typically name beneficiaries. These are the people who will inherit your account. Your will has no power over those accounts unless you fail to name any beneficiary.

Wills don’t control insurance or annuity contracts

They operate the same way as retirement accounts. They are contracts in which you name beneficiaries, and those beneficiary instructions have authority.

Wills don’t control accounts with transfer-on-death (TOD) or pay-on-death (POD) instructions

Sometimes people will add a TOD or POD instruction to an account. Usually, they do this explicitly to avoid probate. But these instructions can occasionally create problems. An example is the charitable giving scenario above, or a gift to a special friend or relative. Your account with a TOD or POD will not go through your will. If there are no assets elsewhere, there will be no funds for the gift.

Wills have power over some trusts, even if that was not your intention

A classic example: Many people create testamentary trusts. They do this by providing, in their last will, instructions that their financial assets will go into a trust when they pass away. The last will usually has specific language with the trust’s terms – for example, who receives what assets from a trust, when they receive it, and whether there are certain conditions or exceptions. But this is different from creating and funding a living trust. A testamentary trust does not avoid probate. At your death, probate will be necessary to move assets from your name, through the will, into the trust. If you want to avoid probate, create and fund living trusts during your life.

Our suggestions:

• Create a simple list of where your assets will go when you pass away. Attach dollar amounts to each account or asset. Then ask: Does your estate plan achieve your goals? If not, amend it.
• Update your last will and other estate planning documents every 5-10 years – and especially after any major life event.

The analysis described above is something we do for our clients every year. If you need help, please contact us.

Your last will has power. Make sure it has the power you want.