You may have read about the importance of having a will and that’s great. But it’s hard to get information about what happens to your assets if you die without one. Let’s consider that now.
Many Assets Pass To Heirs Without Needing A Will Or Trust
Keep in mind that the purpose of a will is to tell the world (and the government) how you want your asset reallocated to your heirs once you die. But there are three kinds of assets that get passed to other specific people after you pass whether you have a will or not:
Assets With Beneficiaries
If you have life insurance, you hopefully named a beneficiary on the policy. If so, the death benefit goes to that person no matter what your trust or will says. And it goes to that person or persons even if you don’t have a will. So long as you named a beneficiary before you died, all is good.
The same thing is true about retirement accounts (as long as you filled out your beneficiary forms) and TOD (Transfer on Death) accounts. As long as you named a beneficiary, that person is going to inherit the asset after you die no matter what.
Neal’s Notes: If you specifically want to cut someone OUT of your estate, you have to not only have estate planning documents, but you have to take other steps as well. Don’t leave this to chance Pilgrim.
Assets With Other Owners
If you own assets as a joint tenant and then die, the surviving joint tenant(s) get the entire asset. Again, it just doesn’t matter at all if you have a will or not when it comes to joint tenant property. But what happens if both joint tenants die at the same time? For those people worried about that, consider looking into the joint tenant beneficiary tactic.
Assets In Trust
Likewise, if you own an asset which is actually held by your trust, the trust document dictates how the asset gets split up after you pass away. Even if you have a will that calls for that asset to be split up a different way, if it’s held in trust, the trust takes precedence. And if you don’t have a will, it doesn’t matter either for assets held in trust. The trust does the job.
If all your assets are owned either as joint tenants, in the trust or have a beneficiary, you don’t have anything to worry about from the standpoint of divvying up assets. You don’t need a will and you don’t have to worry. Nice. But if you have assets that aren’t covered by any of the three situations I described above, you’ve got a problem.
What Happens to Everything Else?
Sadly, if you don’t have a will the courts and the lawyers get involved with all your other assets through a process called “Intestate Probate”. The court first appoints an executor which is usually the surviving spouse or registered domestic partner if one is living. If not, the adult children are typically next in line. The job of the executor is to manage the assets until the court orders the assets to be distributed.
How Are Assets Split Up In Intestate Probate?
After the executor is selected, the courts apply state laws that direct how to divide up the estate. Keep in mind that these laws vary from state to state.
Usually, these intestate probate laws only provide for the spouse, registered domestic partner and blood relatives. Nobody else gets a thing if you don’t have a will or trust. In most cases, the spouse or registered partner gets most of the estate and the closer a person is in the family the more they potentially could receive. How your assets get split up is left entirely up to the state laws and how the judge interprets those laws.
What’s worse is that this process can easily take a year or two and it could drag on much longer. It’s expensive because lawyers have to be involved, there is no privacy. Worst of all the person who died has no control over what happens to his assets. To me that sounds like a terrible idea. A real bummer.
Is A Will A Solution?
Well, having a will is probably better than not having one. At least if you have a will you get to declare who you want to inherit from you. But a will still must be probated and that means it has to go through the court system. As a result, the judge assigned to your case could turn things around completely and split your assets up far differently than what you declared in your will. On top of that, the lawyers are still heavily involved in this process and that means your estate could be whittled down to a toothpick – their fees come right out of your estate friend.
A Better Solution
I’m not a lawyer and I can’t provide legal advice. But depending on the state you live in, a trust might be a far better solution for you than a will. It’s certainly much better than having nothing. As I’ve explained in earlier posts, the trust is private, inexpensive, not administered by the courts and doesn’t involve much attorney time.
When you go, your assets get left behind and somebody has to pick them up. If the assets have a beneficiary or if you own them in joint tenants or through a trust, you are all set. But remember that everything else needs to be re-allocated to your survivors. If you don’t have a will, those assets will go through a long and costly process called intestate probate. Even if you have a will, assets may have to be probated unless you have a will.
What is your estate plan? Does in include having a will? Why or why not?