One thing nobody truly understands either.
If anything, the biggest thing that seems to cross most minds is:
“What’s the point?”
In their eyes, everything goes to the spouse anyway, so there’s no reason to plan anything out…
Something that has a smidge of truth to it, but it’s not necessarily “sound” logic either.
For example, one thing most overlook is what happens after the other spouse passes away.
When all assets go to the living spouse, that’s fine, but since the other spouse doesn’t have that luxury…
A mess starts to happen.
- Courts take over
- Attorney fees drain the Estate
- Families get ruined, because of all the arguing that goes into it…
All things I’m sure you’ve heard about before, just didn’t think it’d happen in your situation, so for today’s article I want to go through and discuss whether this will apply to you or not.
Do so with “pre-probate” planning, an exercise that’ll be extremely helpful for you no matter what, so let’s jump into it here starting with:
Pre-probate planning, what is it?
When it comes to pre-probate planning, the way you want to look at this is how Estates are distributed in two primary stages:
- Stage #1 - Pre-probate
- Stage #2 - Probate
Pretty self-explanatory, I know, but for those who’ve never witnessed this process before…
Probate is the stage where your Estate enters the court system, and a specific judge will take over after that.
In this case, when you have a Will in place, then the court generally just follows your instructions…
Making things faster because of it, and if you don’t have a Will in place then well - that’s when they have to make their own decisions.
This is also where troubles start to happen, as the family feels “out of control”, and courts don’t do this work for free…
So probate is something you want to try and avoid, or at least mitigate - either way.
Seeing this, a large chunk of that happens in the “pre-probate” planning stage, which is where you’re able to create a system that distributes assets before they reach probate.
A lot of times it’s impossible to do this altogether, but there’s always something you can do, so we’ll be going through this exercise today.
Not necessarily a “difficult” exercise, just takes a little bit of thought, so if possible it probably wouldn’t hurt to have a pen and paper handy.
If you’re able to do the exercises as I go through this process, great, but if not then no worries either - you can always come back and do it later on.
Needless to say, that’s enough of the small talk so let’s jump into the important stuff now, starting with:
Step #1 - Writing down all your assets
When it comes to this first step it’s really just a quick process that makes our life easier later on.
From my experience, if you don’t do this first then well, it’s easy to overlook specific items.
Something we want to avoid, as it can have repercussions down the road, so for this step I ask that you write down every asset that you own - or at least co-own.
For example, if you and your spouse own a vehicle, then put that down.
This will get “flushed” out later on, helping us plan accordingly, but it’s helpful to have it down now.
From there, everything is generally straightforward, but the only other thing I wanted to mention was “lumping asset classes”.
I know some people get worried about this as they don’t want to list out every single item in a specific asset class (i.e. silverware set), so for that I generally decide based on value.
In other words, if you have a gun collection that consists of 5 guns and has a $100 value, just say gun collection.
The amount isn’t high enough to list out, so it’s not important, but that’d change if the stakes were higher.
If you had a gun collection with 5 guns and the value was $10K, then I’d list out.
- 1938 bayonet - $2K
- 1940 Grenade Launcher (used in WW2) - $3K
- Etc…
I don’t know much about guns, but you get the hint.
If it’s low value then lump together, if it’s high value then list separately.
Needless to say, that’s about it for this, so a common list might go something along the lines of:
- Primary residence - $300K
- Lakehouse - $200K
- 2019 Tahoe - $20K
- 2021 F-150 - $30K
- Gun Collection - $500
- 401K - $300K
- Checking Account - $30K
- Savings Account - $50K
- Life Insurance Proceeds - $100K…
Which would then take us to:
Step #2 - Beneficiary accounts
As I mentioned earlier in this article, one of the main goals with “pre-probate” planning is keeping specific assets out of probate - and one main way to do this is via beneficiary accounts.
If you’re not familiar with beneficiary accounts, it’s any type of asset where you’re allowed to have a specific beneficiary on it.
When you do this, the “beneficiary” relationship will always trump anything said in a Will, making it a part of the “pre-probate” process.
To give you one example of this, then we’ll move on after that, let’s assume you had a checking account with your brother as the beneficiary.
Something you created 20+ years ago, didn’t think anything of it, but now you have a wife and kids.
Seeing this, you create a Will, and on the Will you have your oldest child being the recipient of all bank accounts.
Want them to receive the money, as you know they’ll distribute it fairly, so you put this in place but then years later you pass away and the “Estate Liquidation” process happens.
Now, your executor will go to the bank, try to get funds so they can distribute it to your oldest child - soon learn it’s not going to work that way.
Instead, the funds have to go to your brother (the Account beneficiary) as this decision trumps everything else, so the Will request is null and void after that (for this specific account).
Anyway, that’s how you want to look at it, so it’s generally not a bad idea to go back and make sure your beneficiaries are “updated”.
I’ve seen a lot of similar situations where this has happened in the past, as an old beneficiary was placed there, but isn’t intended to be the recipient anymore.
In addition to this, I’ve also seen where people will have a “deceased beneficiary” on their account.
Maybe Mom was the beneficiary 20 years ago, but she’s deceased now, meaning the beneficiary is void and “non-existent”.
That creates a situation where the account has to go to probate and if you don’t have a Will in place then well, that’s where the problems start.
With that said, starting to get a little off track here, just wanted to mention upfront…
But for this step it helps if you go through and put a “B” next to every account who has a beneficiary on it.
If you’re not sure, it doesn’t hurt to check with your Account Manager (i.e. Personal Banker), as they’ll be able to mention if you have a beneficiary - or can even put a beneficiary on this specific account…
But a list of common accounts that allow for this are:
- Checking Accounts
- Savings Accounts
- Retirement Accounts, and
- Life insurance proceeds
Again, these aren’t the ONLY accounts, so it never hurts to check others…
But generally speaking, these are the main accounts that everybody can have a beneficiary on - so it’s where I advise you to start.
Needless to say, with our current setup, that creates a new list that now looks like this:
- Primary residence - $300K
- Lakehouse - $200K
- 2019 Tahoe - $20K
- 2021 F-150 - $30K
- Gun Collection - $500
- 401K - $300K (B)
- Checking Account - $30K (B)
- Savings Account - $50K (B)
- Life Insurance Proceeds - $100K (B)…
Meaning we have 4 accounts that’ll avoid probate already, and that takes us to:
Step #3 - Right of survivorship accounts
As I mentioned earlier in this article, one of the biggest “myths” people fall for with this process is thinking it won’t be necessary - as everything goes to their spouse anyway.
In some cases, that is “true”, so I can see where they’re coming from…
But the issue happens after that, when the second spouse passes away and “marital transfers” are no longer a thing.
That creates a completely different scenario, as Estate liquidation with kids/relatives is a lot different than Estate liquidation with spouses, all things we’ll discuss in a second…
But before reaching that point I wanted to mention the concept of “right of survivorship”.
Now in the spirit of transparency, this is something that’ll differentiate a “smidge” by state.
If you live in a “community property” state, then this happens naturally, as your spouse is part owner of everything - but if you live in a “common law” state…
That’s not the case.
Spouses can own separate assets in those states, so it gets a little tricky, but either way it’s helpful to understand if you have any “right of survivorship” accounts.
Generally speaking, this happens with any asset you “co-own”, so for these purposes just put an “J” next to all assets where you and your spouse (or somebody else) co-owns.
If you want to get technical, you can always take your paperwork to an Attorney, having them give you specific information on the ownership after that…
But 99.9999% of the time, “right of survivorship” rules will apply and what that means is that when one owner passes away - the other owner immediately assumes 100% ownership.
As I’m sure you can guess, that allows this asset to avoid “probate”, as it goes to the other owner right away…
So in the spirit of pre-probate planning, mark a “J” (for joint) next to everything you co-own with somebody else.
Going back to our example from earlier, we’d now have a list that looks like this:
- Primary residence - $300K (J)
- Lakehouse - $200K (J)
- 2019 Tahoe - $20K (J)
- 2021 F-150 - $30K (J)
- Gun Collection - $500
- 401K - $300K (B)
- Checking Account - $30K (J) (B)
- Savings Account - $50K (J) (B)
- Life Insurance proceeds - $100K (B)…
Meaning that we’re fairly protected from probate, at least in the initial stages, but that brings us to the last step here:
Step #4 - Long-term planning
As I’ve mentioned a few times throughout this article, one of the biggest problems I’ve noticed with estates over the years is “long-term planning”.
For the most part, if everything is planned out correctly, you’ll likely be okay when the first spouse passes away.
With natural laws in place, and the way everything is designed in America, most of your assets are automatically transferred to a spouse…
BUT, that’s not always the best move either.
Most of the time it is, but in this case let’s look at your gun collection.
Every spouse is different so I can’t really speak on it, but do you think your spouse really wants your gun collection?
Probably not, and if you don’t have any sons, then there’s a good chance you want that to go somewhere else.
In this case, it might be smart to make a Will for numerous reasons, with the biggest one being discussed next…
But for this specific example, you could give the gun collection to your brother (or nephew) specifically - while having everything else go to your spouse.
Win-win all-around, so that’s the “simple” answer, but then on top of this…
It’s always important to plan everything together with your spouse.
For example, most couples will create Wills, one for each…
And when it comes to “primary” beneficiary on all accounts, they put each other.
This is important to do as you want your spouse to get everything, or well, at least the main items…
But after that, they start having “secondary” beneficiaries on everything.
If that was your primary residence, you might put:
- Primary beneficiary - Spouse
- Secondary beneficiary - Oldest child…
Which, assuming you co-own the house then it wouldn’t really matter who your “primary beneficiary” is anyway, as the house will immediately go to the co-owner - but it’s good to do for practical purposes.
Remember, there’s always laws that trump Will instructions, so it’s not like you can mess something up here, but when you structure it this way…
You’re protected now, and years down the road.
If you pass away first, then the house goes to your spouse and their Will kicks-in after that.
Assuming they have the same setup, where:
- Primary beneficiary is you, and
- Secondary beneficiary is your oldest child…
Then the primary residence would go to your oldest child, once the second spouse passes away.
Essentially “layers” of protection here, where you’re making sure the entire Estate is “future-proofed”, not just for when the first spouse passes away…
And on top of that, there’s always odds and ends you can distribute accordingly as well.
For example, if your spouse has a silverware set, one that was her mother’s…
Then maybe she wants that to go to her sister when she passes away, instead of being distributed to her children (who are all boys).
In this case, if she doesn’t mention this specifically, then it’ll go into the hands of her boys…
As they’re likely “residuary beneficiaries” (i.e. get everything else that isn’t specifically mentioned), and it could cause a little bit of “tension” if that happened.
Of course, that’s a measly example, but hopefully you get what I’m saying with this…
And here’s:
The recap
Long story short, pre-probate planning is something you should do no matter what, as you want to avoid (or at least mitigate) probate altogether…
Doing so by making sure all your “available” accounts have beneficiaries, and all your “main assets” are co-owned by a spouse - as that avoids a lot of issues by itself…
But after getting that in place, the “second order of consequence” is generally the deciding factor on whether you need a Will or not.
If you have one child and you want them to get everything, you’ll probably be fine.
Sure, it’d save them a little bit of money if you just created a Will, as that’d keep probate costs down…
But from a “headache” standpoint, they wouldn’t have much to worry about.
Children are naturally the beneficiary after both spouses pass away, even though they don’t have to be, but if you have a more complex situation than that…
Such as:
- Step-children
- Multiple children
- Outside beneficiaries (i.e. your brother, or mom, etc.)
- Etc…
Then it can get a little more complicated.
In these cases the courts are forced to follow “default rules”, solely because they don’t have a Will to follow, and that usually means some things are distributed in a way you wouldn’t like.
- Primary residence goes to the wrong child
- Your biological children are excluded from everything, as you passed away first and the Spouse’s kids get everything (step-children aren’t natural beneficiaries in most states)
- Etc…
There’s a lot of different things to consider, so something to keep in mind either way.
I know a Will isn’t something most want to think about, but with the right information/templates in place, it’s actually pretty easy…
As you can create an ironclad Will in less than 30 minutes, and if that’s something you’d be interested in learning more about - we have an Ultimate Will Kit that assists with all this (more info found after clicking the link below):
Learn more and create your own Ironclad Will today
With that said, that’s all I got for now, so thanks again for reading this - and hopefully we answered your question on whether you’ll need a Will or not.
-Ivon T. Hughes
