You’re an adult, you have a lot going on, and you’re not going to die tomorrow as, far as you know. Putting together estate planning documents may be the last thing on your mind, but it shouldn’t be if you care even a little bit about where your assets go when you pass on. Today, we’re going to cover the four major reasons to have a Last Will and Testament.
However, we have to mention that a Last Will and Testament does not cover everything. Once we get more into it, we’ll reveal the nasty secret about probate that you rarely hear from estate planning attorneys. Plus also stick around until the very end to get a fifth bonus reason to have a Will even if you are planning to avoid probate.
Let’s jump into the four major reasons to make, update, and maintain a Last Will and Testament.
- Choose your own beneficiaries and not leave it up to the state. If you don’t put your inheritance wishes into a Last Will and Testament, then you don’t have to worry about who inherits your estate because the State you live in has chosen your beneficiaries for you… and it may not be who you expect.
For instance, most people in my home state of North Carolina don’t realize that a spouse does not always inherit everything. In fact, there is a sum of money that goes to a surviving spouse first, but then if there are two or more children, then the surviving spouse only gets a third of the estate and the rest goes to the kids.
If you are perfectly fine letting the state decide who inherits your assets, then you don’t need to worry about choosing beneficiaries through a Will. But most people I have encountered don’t want the State making decisions for them when they have the option to decide things for themselves.
- Name the people you want wrapping up final affairs when you pass on. The person in charge of paying off debts, submitting tax returns, collecting assets, and making sure the beneficiaries get what they are entitled to under the Will is called your Executor. There are other fairly interchangeable terms for this position, namely an “Administrator” or “Personal Representative.” Still, the differences really amount to legal language hair-splitting that the average person doesn’t care about. In short, this person finalizes your remaining obligations in this world after you have gone to the next.
Large legal messes happen when people who are not qualified get put in charge of these legal obligations, and that often happens when you don’t choose an executor wisely or if you don’t choose at all. When you don’t have a Will naming an executor, state law takes over and your “next of kin” jumps to the head of the line to administer things. This does not depend on how qualified they are for the job, it does not depend on whether or not they are organized, and it doesn’t depend on whether or not there are more qualified people willing to take on the duties. State law basically deems them worthy and qualified if they are the most closely related to you, are over 18, and don’t have a criminal record with felonies or financial misdemeanors.
By listing the people you want, one at a time and in succession, you are letting the court know your wishes. (For more information on why co-anything is a bad idea, check out the video “Who Should Be Your Trustee?” here:
- Specific burial and final disposition wishes. I sometimes have clients who have very specific burial, cremation, and other bodily disposition terms they absolutely want to happen. The usual recommendation is to fully empower the named executor to make these decisions just because there are so many details, some of my clients do wish for some specific terms. It may be as general as burial versus cremation, and it may be as specific as having the ashes incorporated into fireworks to be shot off during the next full moon. (Yes, this happens, and the fireworks service is available; check it out here.) And it is up to your executor to make it happen.
One reason the executor is the person in charge of these items is that people will generally choose a fiscally responsible person to be their executor. That executor will not be as easily swayed by expensive grand gestures when it comes to the details at a funeral home. People who are more emotional in times of grief will overspend on these details that would often be considered frivolous when thought about logically, and it is a lot easier for them to spend the money since it isn’t coming out of their pockets… it’s coming out of the estate.
- Establish trust terms for underage beneficiaries. Eighteen is almost always WAY too young for a substantial inheritance. However, the law puts the age of adulthood at 18, and many financial institutions either follow suit or possibly age 21. However, with a Last Will and Testament, you have the opportunity to put in place what is called a “testamentary trust” that can hold assets until your beneficiaries reach the appropriate age you determine. Until the beneficiary reaches that age, or the chosen trustee (usually the executor) decides to distribute the money early, it is held in trust and supervised by the court.
While there is a lot of talk of trusts being used to avoid probate, a testamentary trust is not one of those trusts. Most of the time, people mentioning trusts to avoid probate are talking about a revocable living trust, which can also hold assets until the beneficiary reaches an appropriate age you determine. This type of trust is not supervised by a court, but that also means there are not as many formalities or expenses related to administering it. (For more information on revocable living trusts, check out the free program at www.FreeTrustCourse.com.)
The Big Secret Surrounding a Last Will and Testament
And now it’s time to reveal the big secret surrounding a Last Will and Testament and probate. Yes, you need to have a Last Will and Testament, BUT the Last Will and Testament will only cover assets that end up in probate.
When someone dies and their estate goes through the probate court system, it often comes with costs, delays, potential contests, and a loss of privacy. (For more on the downsides of probate, check out my book Estate Planning Basics available at www.EstatePlanningBasicsBook.com). Therefore, people will routinely put pay on death beneficiaries of joint owners on accounts to avoid probate.
This is where people often get tripped up in their estate plans because they don’t understand this one underpublicized truth: A Last Will and Testament only covers what is in probate. So if you avoid probate for certain assets, then listing beneficiaries or changing them later, naming someone to manage the inheritance process, and putting age limits on inheritance for underage beneficiaries in a Will does not apply to those assets.
For example, you don’t get to name your 18-year-old child as a pay-on-death beneficiary for your brokerage account, put an age restriction of 30 in your Will, and then expect that your child won’t inherit that brokerage account until they turn 30. Because the account avoided probate, it also avoided the age limits drafted into your Will.
This now leads us to the fifth “bonus” reason to have a Last Will and Testament even if you plan on trying to avoid probate as much as possible by using a revocable living trust.
5) A trust doesn’t automatically avoid probate. A revocable living trust is not some magical legal device that you sign and everything avoids probate. Probate is based on the title to assets. A probate court will only cover assets that are titled in a deceased person’s name, run them through the court process, and then RETITLE the assets to the beneficiaries on the other side. So when putting together a revocable living trust to avoid probate, you also have to do what is called “funding” your trust by changing the title to assets, making the trust the pay-on-death beneficiary, or consciously deciding to name beneficiaries other than the trust, usually for tax reasons.
But not everything always makes it in to the trust, and sometimes there are things you just can’t do anything about that end up in probate. The most obvious example is if someone files their taxes expecting a refund, but they die before the refund is issued. The federal government will only issue the refund payment in the “estate” of the deceased person, which means it has to go into probate. Another example we see all the time in my law firm (The Law Offices of Jeffrey G. Marsocci, PLLC) is people setting up credit union share accounts to take advantage of certain benefits only available to their members, but the account has to be titled in their individual name. That account may end up in probate. However, you don’t need a FULL Last Will and Testament for this. You need what is called a “Pour-Over Will,” meaning assets that end up in probate pour over into the trust once probate is done.
The Pour-Over Will usually lists the same exact executors as the trustees in the revocable living trust, and the only beneficiary of this type of Will is that same revocable living trust. In the end, the Will, which is a publicly available filed court document, does not list the actual beneficiaries and put them on marketing lists. So, yes, you do need a Last Will and Testament even if you have a revocable living trust, but the trust is what is actually doing all of the heavy lifting in an estate plan.
I hope you found that information useful. If you are reading this and are a resident of North Carolina and need to have your estate planning done, then please contact our law firm to help by calling 919-844-7993.