Most people don’t really understand what a will does, and doesn’t do, even after they finally get one in place. And it’s essential… if you don’t really understand will does, and doesn’t do, a lawyer can make you the best estate plan in the world, and you can mess it up the next day because you didn’t really understand what you were doing. Let’s look at a couple of simple examples:
Tom and Mary have one son together. They own their home together, and Mary is the beneficiary of Tom’s life insurance, 401-K’s, etc. But one day Tom gets mad at Mary and writes a brand new will. In this new will he gives everything to his adult daughter from a previous marriage, including the life insurance, 401-K’s, etc! The will is witnessed and notarized… it’s 100% valid. Then, he gets hit by a truck and killed on the way home. Questions: (1) Who gets the house? (2) Who gets the life insurance? (3) Doesn’t the adult daughter get everything, since that’s what the will says?
HOUSE: Mary gets the house, for a very simple reason. There are two names on the house, Tom and Mary. When Tom dies, Mary’s now the sole owner. Period. It doesn’t matter what the will says.
LIFE INSURANCE: 401-K’S: Mary gets all this too! Why? Because she’s the named beneficiary, and that’s what controls. When you name a beneficiary on a 401-K, life insurance policy, car title, house, or anything else… that beneficiary designation automatically transfers that asset to the beneficiary instantly, by operation of law, upon your death. It doesn’t matter what the will says. It’s already done.
The lesson is this: if someone’s name is on a title, or if there’s a named beneficiary, that trumps the will! A will only transfers property that doesn’t get transferred automatically upon death… and in most cases you want property to get transferred automatically upon death, because if it doesn’t, guess who gets involved in the transfer process? You guessed it… the probate court!
So is a will still important? You bet it is! How a will works in conjunction with beneficiaries designations, living trust, etc, will be explored in further blog postings.