According to recent studies, more than half of all Americans are likely to die without a will. In this event, applicable state laws will dictate what happens to the assets of the estate. The decedent will have no say in the disposition, nor will the surviving family.
In general, state laws will direct the assets to spouse and children, or parents and other family members if the decedent was not married and had no descendants. There is no provision for bequests to friends, benefactors or charities. But even those who have a valid will might not have the distribution go entirely according to their wishes.
When a Valid Will Isn’t Enough
There are several reasons for this disparity. First of all, many assets do not pass through probate and thus are not subject to will provisions. Most people are aware that any insurance proceeds will go to the named beneficiary, but there are also other items to consider. Retirement accounts, annuities, transfer on death (TOD) and joint accounts will pass outside the will, as will any property held in joint tenancy with rights of survivorship.
Another consideration is that a person’s circumstances may have changed. Change is an unavoidable part of life, as we all know. Some of the major changes one might experience include marriage, divorce, the death of a loved one or the birth/adoption of a child or grandchild. Whether planned or unexpected, every change requires some adjustments, but often people overlook the less obvious items. For this reason, clients should be reminded to review their wills on a regular basis and update them as necessary.
How Planners Can Help Clients Manage Their Wills and Related Documents
Just as important, though, is to review the beneficiary designations (both primary and contingent) on all retirement plans, insurance policies, annuities and such. Many a court battle has developed when an individual neglected this important detail. For instance, if a person fails to change the beneficiary after a divorce, insurance proceeds could be paid to an ex-spouse rather than the children or current spouse. Some states have laws that invalidate ex-spouse beneficiary designations after a divorce, but these laws don’t necessarily apply in every case, and can be superseded by any applicable federal statutes.
For retirement accounts covered by ERISA, a spouse automatically has rights to the account unless he or she has signed a waiver. So if, after a divorce, you name your children as beneficiaries of your 401(k) and subsequently remarry, your new spouse will get the assets absent a valid waiver. Any other beneficiary designation will be disregarded.
Every change in circumstance should prompt a review. An unmarried person may have designated parents or a sibling as beneficiary of an insurance policy and then married but never updated the beneficiary. Perhaps the original beneficiary of a plan or policy has passed away, in which case the choice of contingent beneficiaries comes into play. Should they be moved up to primary, or is there reason to make a different choice? Maybe there’s a new child in the family who needs to be provided for, or donating to a charity becomes a better option.
Given the certainty of change, a planner should not only exhort clients to execute their wills, it’s important for the planner to also remind them to review and update all of their documents and designations regularly.