Estate Plan Guidelines: What Assets Pass Through My Will?

When drafting a last will and testament, many people want to start the consultation for their estate plan with numbers.

They may want to leave $20,000 to each of their children, $1,000 to their favorite niece, and $500 to their local charity. These numbers are usually developed after consideration of all their assets, such as their home, bank accounts, and retirement accounts.

However, your will may not distribute all of your assets. Therefore giving a specific amount of money under your will, to an individual or charity, can wreak havoc on your estate plan.

Let’s look at an example of an estate plan.

using a will to create an estate plan.David and Linda purchased their home a year after they married. They now have three adult children and two grandchildren. They are active members of their church and enjoy volunteering at a local charity.

They realize that they need a will and so they make an appointment to speak to an attorney. Before their appointment, they decide to do some homework. They make a list of all their intangible assets and tangible assets, and the assets’ estimated values. Their list of assets include:

  • Home: $250,000
  • Checking Account: $10,000
  • Investment Account: $100,000
  • David’s IRA: $200,000

After making the list, they decide that they want to give $50,000 to each of their children, $15,000 to each of their grandchildren, and $10,000 each to their church and favorite charity.

The total amount of these gifts is $200,000. Any remaining money will go to the other spouse. They decide to bring this idea to their Charlotte NC lawyer for estate planning.

Upon receipt of the list and the proposed gifts, the attorney tells them “I can’t write this into your will.” Why? After all, one of the reasons to create a will is to designate who receives your property upon your passing.

Yes, a will is a legal document that designates who receives your property upon your passing. However, your will only distributes assets that are not effectively disposed of through some other means.

So, what does that mean?

couple thinking about an estate plan.Look again at David and Linda’s assets. First, David’s IRA and the investment account most likely have beneficiary designations. Therefore, these assets already have directions as to where the assets go upon the owner’s passing and will not go through the will if a designated beneficiary survives.

Again, your legally binding will only picks up assets not effectively disposed of through some other means. Beneficiary designations effectively dispose of assets by dictating who they go to upon your passing, and so, will not be picked up by your will.

Next, let’s look at the house. David and Linda purchased their house together after they were married. This type of personal property ownership is called Tenancy by the Entirety and upon the passing of one of the owners, the remaining owner automatically owns the decedent’s interest. Therefore, upon the passing of David or Linda, the other will automatically become the sole owner of the home and it will not pass according to the will.

Look back up at the list of David and Linda’s assets. Everything but the $10,000 bank account has already gone to a beneficiary. Now, look back at the gifts they want to include in their will. They have $10,000 to satisfy $200,000 worth of gifts.

So now what happens?

Each of the specific amounts of money will be reduced in proportion, with the three kids, the two grandkids, the church and the charity receiving a pro rata portion of the remaining $10,000 based off the amount they were allotted from the $200,000. What does this mean for the surviving spouse? They get nothing under the will.

As you can see, an effective estate plan involves a deep dive and close inspection into your assets. An estate planning attorney should walk through all your assets with you and discuss how each asset can affect your will. Our Matthews, NC, attorneys can help! Call the Weaver, Bennett, and Bland law firm for a consultation.