Q. My wife and I were wondering whether we would need more than a Last Will for each of us to cover what happens upon death. Is a Will usually enough?
A. Good question. The simple answer is “No”. Usually more planning documents are necessary, or at least strongly advisable.
While a Will is an important estate planning document, there are things that it won’t cover or cannot do. Consider the following:
Wills Do Not Cover All Property: Although a Will is one way to direct who gets your property on death, it does not cover everything. The following are examples of property you cannot distribute by Will:
Jointly held property. Property that is co-owned with another person is usually not distributed through your Will. If held in Joint Tenancy, then upon the death of a joint tenant, his or her interest goes to the other joint tenant(s) and not according to the deceased joint tenant’s Will.
Property in Trust. If you place property into a trust, the property passes to the beneficiaries named in the trust, not according to your Will. Sometimes there may be a dispute as to whether the property is in your Trust or in your Will, and this may have to be decided by a probate judge.
Pay on Death accounts. With Pay on Death, or “Transfer upon Death” accounts, the account owner names a beneficiary (or beneficiaries) to whom the account assets pass automatically upon the death of the original owner, and are not governed by your Will.
Life insurance. Life insurance passes to the beneficiary you name in your life insurance policy and is not controlled by your Will.
Retirement plan. Similar to life insurance, assets in a retirement account (e.g., an IRA or 401(k)) pass to the named beneficiar(ies). Under federal law, a surviving spouse is usually the automatic beneficiary of a 401(k), although there are some exceptions. With an IRA, you may be able to name your preferred beneficiary, but subject to your spouse’s consent if the assets are community property.
A Will is also not well suited to address these other matters:
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.
Management Of Assets During Incapacity: A Will only “speaks” at death, so if you wish someone whom you trust to take charge of assets if you become incapacitated, you will need other estate planning documents, e.g. a Trust and/or Durable Power Of Attorney.
Facilitating Eligibility for Care Subsidy: Many elders need long term care in their later years, which is usually expensive. To help with that expense, their family may seek a public benefits subsidy under the Medi-Cal program. However, doing so often requires that certain steps be taken with assets in order to qualify. To facilitate qualification, the elder must have delegated certain legal powers over assets to a trusted child or other family. Wills, which only take effect at death, do not address this need.
Probate Usually Required. Property distributed via a Will usually requires a probate, which is the formal process by which the court supervises the distribution of your property as instructed in your Will. Many people prefer to avoid probate, and hence their reliance upon Trusts or other devices.
Food for thought?