You know the importance of having a will. If you die “intestate” (without a will in legal language), your state’s laws will determine the disposition of your assets. Your actual wishes will be irrelevant, even though they may be well known to your friends and relatives.
But even if you do have a will, here is a critical point: Your will has no effect on asset distributions that automatically occur upon your death under “operation of law.”
The most common applications of the “operation of law” principle is with life insurance death benefits and tax-advantaged retirement accounts.
For example, whoever you designate as the beneficiary of your life insurance policy will automatically receive the death benefit proceeds. It doesn’t matter what your will says about who should receive the money.
Similarly, the person or persons designated as the beneficiary of your tax-deferred retirement account, traditional IRA, or Roth IRA will automatically receive that money by “operation of law.” It makes no difference if your will contains contrary instructions.
Another example: When you co-own real estate with someone in “joint tenancy with right of survivorship,” that co-owner automatically inherits the whole property, regardless of what your will says.
You may have other assets that are affected by the “operation of law” rules. Talk with your estate planning adviser to ensure your wishes are carried out.
Finally, at the same time you have your will drafted or revised, be sure to get all your beneficiary designations and real property ownership arrangements in line with your current intentions about who should receive what, after you die.
An Effective Will
Here are three basic things you should cover:
- Executor Designation. The executor is the person who becomes legally responsible for wrapping up your affairs after you die. He or she will pay outstanding bills, file any necessary tax returns, make tax payments, and dole out the remaining assets as instructed by your will. You should name at least one alternate choice in case the first choice doesn’t work out.
- Asset Disposition Instructions. A properly drafted will generally heads off disputes regarding which heirs get which assets.
- Guardian Designation. The guardian takes legal charge of your minor children, if you (and your spouse) die. Designate at least one alternate in case your first choice is unable to fulfill the role. For more information, click here to read our previous article, “Picking a Guardian for Your Kids.”
For more information about your life planning needs, call Herzog Law Firm, P.C. at (518) 465-7581 or visit HerzogLaw.com.