IS THERE A DISCONNECT BETWEEN YOUR WILL OR LIVING TRUST AND YOUR ASSETS?
Do you have a Will? Or a Revocable Living Trust? Does this document say how your assets will be divided among your family members at your death? Example – “I leave everything to my children in equal shares.”
Now think about your assets. Have you added someone as a joint owner on your bank accounts or real estate for convenience or for some other reason? Have you named beneficiaries on your life insurance policies and retirement plans (IRAs, 401Ks)? If you’re like most people, you probably have.
A recurring problem that we see with our clients is that their Will or Revocable Living Trust (sometimes called a “Living Trust” or “Declaration of Trust”) says one thing, but the titling of their assets, or Payable on Death/Transfer on Death (POD/TOD) beneficiary designations, say something completely different. This leads to unintended results, family fighting, and often a lot of additional time and expense for your family to sort it all out.
Following are some points you must understand when planning for the disposition of your assets at your death:
- Your Will only disposes of assets that are titled in your individual name at your death. If such assets total over $100,000 in value, or if you own any real estate in your own name at your death, then probate will likely be necessary to transfer such assets to the beneficiaries named in your Will. A Will does not avoid probate.
- A Living Trust will only control the disposition of assets that are titled in the name of the Living Trust, or payable to the Living Trust, upon your death. Thus, if you have executed a Living Trust, you must be sure that you have taken the necessary steps to fund your Living Trust by properly titling your assets and naming such trust as the beneficiary, as appropriate, so that your Living Trust will actually work the way you intend.
- Bank accounts, stocks, real estate, and any other assets titled jointly with right of survivorship will pass by operation of law to the surviving joint owner, regardless of what your Will or Living Trust provides. Don’t assume that the person you added as a joint owner for convenience to help you during your life will then share the asset with other family members at your death.
- If you have named primary and contingent beneficiaries on your retirement plan accounts and life insurance policies (which, hopefully, you have), these accounts and policies will pass to the named beneficiary, regardless of what your Will or Living Trust states (unless your estate or Living Trust is named as the beneficiary). If any of these beneficiaries are minors or disabled adults, a guardianship estate will need to be opened for such beneficiary. If you haven’t checked your beneficiary designations recently, you may be surprised who you named years ago when you opened the account or purchased the policy.
Even if the person who is named on your bank account with you, or who is named as the beneficiary on your life insurance policy, chooses to carry out your wishes and share these assets with your other family members according to your Will or Living Trust, they, and your other family members, will need comply with gift tax and income tax filing requirements and sort out the tax consequences of such transfers between them.
Make it easier on your family. Prepare your Will and Living Trust to provide for your intended distribution at your death. And then make the changes on your accounts so that these provisions will apply to your assets. In other words, “connect” your assets to your Living Trust. Doing so will result in your wishes being carried out legally, and without relying on your family to “do the right thing” and forcing them into more tax filings than necessary. It is important that you coordinate all of your estate planning documents, titling of your assets, and beneficiary designations to be sure that your intended beneficiaries actually receive what you want them to receive at your death.
Contact our office to schedule a no-charge initial consultation with one of our experienced estate planning attorneys. We will address all of these issues, and more, to be sure that your final wishes for your hard-earned assets can be carried out.