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Many people have the mistaken
impression that their Last Will and Testament determines
what happens to their possessions when they die. As John, a
reader in Maryville, TN learned, that’s not necessarily
true.
Time and time again we are told about the importance of
having a Last Will and Testament (Will). “What’s a Will?” we
ask. “It tells who gets what when you die,” is the classic
response. So we come away thinking that by taking the time
to draft our Will that we have put our affairs in order.
Unfortunately, it is not that simple.
When transfer of ownership of an asset is based on your
Will, that item is said to ‘pass through’ your Will. There
is even an elaborate, mandatory legal process
involving the courts that ensures your Will is handled just
right. This process is called Probate. Most heirs end up
using an attorney to navigate the Probate process for them.
As a result, Probate normally takes approximately 12 months
and can easily cost thousands of dollars.
Many things you own will not ‘pass through’ you Will.
Therefore, what you’ve stated in your Will has no affect on
who receives them. The first group of assets that avoid
your Will are those that name a beneficiary. Common examples
of these assets are life insurance, annuities, and
retirement accounts.
For instance, I own two large life insurance policies on my
life. If I were ever to pass away prematurely, it is
important for me that my wife and children be taken care of
financially. When purchased, I had to decide who would get
that money when I died. I named the beneficiaries. Now, if I
pass away while those policies are still in force, the
beneficiaries I named on that contract are the ones who will
get the proceeds, regardless of what my Will says.
The proceeds of a life insurance policy pass by contract,
not by Will. All beneficiaries have to do is present a
certified copy of your death certificate to the insurance
company and the money is paid out. No Will. No Probate. No
attorneys or courts. Better yet, the beneficiaries get the
money in weeks instead of months or years.
It works the same way with any asset on which you have named
a beneficiary. Company retirement programs, IRAs, annuities
and even bank and brokerage accounts allow you to name a
beneficiary. Properly planned, this can be an effective way
to distribute assets at your death.
The second group of assets not controlled by your Will are
those that pass by Title. Real Estate and vehicles are a
perfect example but this can also apply to bank and
brokerage accounts. It’s common for most couples to own
their assets jointly. When one spouse passes away, that
asset passes by title and becomes the property of the
other spouse, regardless of what is in your will. Since your
Will is not involved, Probate is avoided.
Thirdly, assets owned by a trust do not pass according to
your Will and thus avoid Probate as well. The most common
type of trust is a Revocable Living Trust. You decide who
receives what when you set up a trust. Assets such as bank
and brokerage accounts, vehicles and real estate are then
titled in the name of the trust. A trust can be the
beneficiary of your life insurance policies. It is also easy
for personal property to be owned by a trust. Properly
funded, a Living Trust can allow someone to avoid Probate
altogether.
It is only assets that don’t have a named beneficiary, that
don’t pass by title and that are not owned by a trust that
pass through your Last Will and Testament. So instead of
being the main document that determines the distribution of
your estate, it ends up being the last.
Everyone should have a Last Will and Testament. You need to
make sure that you coordinate your desires between your
Will, your beneficiary designations and the ownership of
your assets. Otherwise, your wishes may not be carried out.
If you have a specific question or would like more
information give me a call toll-free at 1-877-827-1463 or go
to www.guardingyourwealth.com. You can also reach me by
email at jeff@guardingyourwealth.com. I will be happy to
help you in any way I can.
Mr. Voudrie is a Certified Financial Planner and the
President of Legacy Planning Group, Inc., a Private Wealth
Management firm in Johnson City, TN.
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