Will the Wrong People Inherit Your Money?
Most people realize the importance of their last will and testament. After all, historically speaking, this has been the main document through which people have "controlled from the grave" how their property should be dealt with after they die.
It also offers a final opportunity to communicate something important to those you leave behind.
In more recent times, the living revocable trust (usually accompanied by a simple will) has become increasingly popular as the instrument of choice for distributing your wealth in accordance with your final wishes.
Either way, care must be taken in the drafting of these documents and, just as importantly, in keeping them updated. Also, some forms of your property are designed to pass by law independent of your will or trust, and these need constant attention as well.
Unfortunately, as someone whose profession often deals with assisting with the administration of estates and trusts, I have all too often seen situations where someone's money is going to people to whom I have no doubt it was not intended by the deceased, and likely resulted in a big, perhaps unpleasant surprise, to surviving loved ones.
But this can be avoided. Here are some examples of how that could happen and what to do about it:
First is the situation where you die "intestate". This fancy word just means you die without having executed a will or revocable trust recognized by law. In other words, there is no legally binding indication of how you desired for your assets to be divvied up. In this case, state law takes over and decides for you who gets what, and likely it's not how you would want it.
For example, in Arkansas, for someone who is married and has children, in general (for assets other than land) the law says your spouse is only entitled to 1/3 of your assets, while your children receive the remaining 2/3 between them. There are other rules for land, and it really gets weird if you are married with no children since the length of time you are married can determine if your spouse gets all our wealth or must share some with others.
Another situation is where there is a will or trust in place, but it hasn't been updated after a major life event has taken place, such as a divorce and/or remarriage. Your estate planning documents could literally be leaving everything to someone not in your life any more to the exclusion of those you intended to benefit, such as your current spouse, children, beloved friends or charities that are close to your heart. Sadly, there may be nothing your desired heirs could do about it!
This same thing can happen on financial accounts that pass via beneficiary designation, such as retirement plan accounts (including IRAs), life insurance policies and annuities. If a beneficiary designation is made, that's who gets the money. All to often, the simple step of changing a beneficiary designation after a major life event is overlooked, resulting in a nasty surprise.
Another problem occurs when there is no beneficiary designated at all. In that case, the account reverts back to the estate. If there is a will, that now governs how the account will pass. And again, if there is no will, you're back to the intestate rules discussed earlier. Either way is likely NOT the desired result.
Similarly, many people have TOD (transfer on death) or POD (pay on death) designations placed on their bank and brokerage accounts. Like the designated beneficiary issue just discussed, these need to be periodically reviewed and kept up-to-date to make sure the people you want to have those accounts actually get those accounts.
Bottom line – be sure you have a will and, if appropriate, a revocable trust in the first place, and then keep it updated as life changes occur. Similarly, make it a point to periodically review all beneficiary and TOD/POD designations, and update them as desired, especially after major life events.
Giving careful consideration and thought to these situations will go a long way to showing the care and love we all desire to demonstrate to our loved ones and to leaving a legacy that remains long after we transition from this life to the next!
