Robert Burns famously said, “The best-laid plans of mice and men often go awry.” Burns was an 18th century Scottish poet, but he could just as easily have been a modern Estates & Trusts attorney. Too often, this familiar saying applies to the estate of someone who has died.
Even if the person had a will, the final determination of who gets what might be dramatically different from what was expected. Why would this be? The simple fact is that a will can do only so much. It controls the assets that you own in your name alone and that do not name a beneficiary. These “probate assets,” as they are called, include things like a house, car, or bank account without a co-owner.
The problem is that for most of us, the bulk of our wealth resides in assets that do have a co-owner or beneficiary. Think joint bank accounts, life insurance policies, and retirement accounts. Upon your death, these “non-probate assets” will transfer to the co-owner or named beneficiary – regardless of what your will might say.
For example, your will may leave your entire estate to your spouse. But if you own your house with someone other than your spouse, the property may transfer to the co-owner upon your death. This could be a parent who helped you finance the property or an ex you bought the house with and never took off the title.
In the same way, if the beneficiary you named on your life insurance policy or retirement account is out of date, your spouse will have no right to the asset, despite any instructions to the contrary under your will. These beneficiary designations may have made sense when you opened the account or took out the policy, but they eventually became outdated.
Other assets, like checking and savings accounts, CDs, and brokerage accounts can also circumvent your will if they include a “pay on death” or “transfer on death” provision. And if anything, you own is held in a trust, your spouse or other intended beneficiary will never receive it unless the trust says so.
There can be good reasons for setting up these types of non-probate transfers. The assets will transfer to your intended beneficiaries much more quickly than assets controlled under your will, and they are often protected from the claims of creditors.
For example, if you died owing money to Visa, the credit card company might make a “claim” against your estate. But only the assets in your probate estate would be vulnerable to the claim. Any life insurance death benefits or retirement account funds would go directly to their named beneficiaries and in most cases would lie beyond the creditor’s reach.
When someone dies, the dual nature of the person’s property – the “probate” and the “non-probate” assets – can lead to heartbreaking results. The probate assets, which the will controls, may go to the right people but could be relatively minor in value. After all, how much do you really keep in your checking account?
The non-probate assets, on the other hand, may be much more significant but could go to the wrong person by mistake. If the life insurance death benefit, retirement account, or brokerage assets bypass a loved one in favor of an out-of-date beneficiary, the devastation will likely be emotional as well as financial. Bringing your beneficiary designations into line with the terms of your will is one of the goals of estate planning. With professional guidance, your probate and non-probate assets can be coordinated to work in tandem. Upon your death, your partner, spouse, children, or other loved ones will become the heirs of your legacy – and not just a financial legacy, but a legacy of taking care to provide for the people you care about most.
Lee Carpenter is a partner at the Baltimore law firm of Niles, Barton & Wilmer and an adjunct professor at the University of Maryland Carey School of Law. He can be reached at 410-783-6349 or email@example.com.
Learn more about LGBT estate planning at mdlgbtestateplanning.com.
This article is intended to provide general information, not specific legal advice.