While a will is one of the most important estate planning documents you can have, there are things that it won't cover. That is why a will is just one part of a comprehensive estate plan.
The reason we recommend people use a Revocable (or Living) Trust is because a will has important limitations. First, if you only use a will, you must go through the Probate process, which is slow and costly! Your estate plan should include a valid will to catch property that you may have omitted from your Trust and also to name a guardian for your children.
Although a will is one main way to transfer property on death, it does not cover all property. The following are 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, his or her 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) to whom the account assets pass to automatically when the owner dies.
- Life insurance. Life insurance passes to the beneficiary you name 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 cannot use a will for. The following are examples of items that should not be included 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 cannot 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 on 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, call Feldman Law Group today at (925)283-6691 to schedule an appointment to talk to Attorney Aaron Feldman.