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Guarding Your Wealth for Senior Citizens
Senior Citizens Need to Understand Why a Will
Sometimes 'Won't'
Many think that with a Will they don’t have
anything to worry about
By Jeffrey D. Voudrie, CFP
Aug. 9, 2007 - A Last Will and Testament is the
most basic of estate planning documents, but also one that is often
misunderstood. Many think that if they have a Will they don’t have
anything to worry about - everything will go to the persons they
specify. That’s not true, though, and it’s important you understand why
a Will sometimes "Won’t".
Let’s test your knowledge of how a Will works.
Here
are the basic assumptions. Husband and Wife own a home, they have a
checking account, a Certificate of Deposit, a life insurance policy on
Husband and an IRA for Wife. They have two children, Son and Daughter.
They each have a Will that says everything gets divided equally between
their Son and Daughter.
The home is in both Husband’s and Wife’s name.
Since they are getting up in years, and because Daughter lives close to
them, they’ve added Daughter’s name to their checking account and
Certificate of Deposit so those funds can be used to help care for them.
Husband has had his life insurance policy for decades and when he set it
up, he named Son as the beneficiary. Wife wants Husband to have the
money from her IRA in case he needs it, so she has named him the
beneficiary. Lastly, Son and Daughter don’t get along very well.
Here’s the quiz:
Question: If Husband dies first, who gets the
life insurance money?
Answer: Remember, the Will says it should be
divided equally between Son and Daughter. Is that what will happen? No.
Since the Son is named as beneficiary on the life insurance policy, the
Son will get 100% of the death benefit. In this situation the Will
doesn’t matter - it won’t.
Question: Who gets the home after Husband and
Wife both die?
Answer: In this situation, the Will determines that
the ownership of the home will be equally divided between Son and
Daughter.
Question: Does the home have to go through
Probate?
Answer: Yes, anytime the Will decides how something
is passed on, it must go through Probate. Probate is the legal process
of proving the authenticity of the Will and that the assets are handled
accordingly.
Question: When both Husband and Wife die, how
soon with the money from the Certificate of Deposit and the checking
account be divided between Son and Daughter?
Answer: Never. This is another situation in which
the Will won’t. Since Daugther’s name is on both the Certificate of
Deposit and the checking account as a co-owner, Daughter gets all of
that money. It doesn’t have to pass through Probate, it’s hers right
away.
Imagine how happy Son would be when he finds out
that even though the Will says everything is split equally, that
Daughter gets all the Certificate of Deposit and checking account. At
least he got the life insurance money—but it was a small policy--much,
much less than what the Certificate of Deposit and checking account were
worth!
Question: Husband dies first, then the Wife
passes away. Who gets the IRA?
Answer: It is split between Son and Daughter, but
much of it is lost to taxes. This one is more tricky. The husband was
named the beneficiary. There weren’t any contingent beneficiaries named.
Since she died after him, the IRA doesn’t have a beneficiary!
When an IRA doesn’t have a beneficiary, it becomes
a part of the overall estate and is handled by the Will. As a part of
the process, though, all the money is taken out of the IRA and taxes
have to be paid on it. Whatever is left then gets divided between Son
and Daughter.
This situation could have cost Son and Daughter
tens of thousands of dollars. If Wife had named them as beneficiaries
after Husband died, then they would have inherited the IRA and could
have continued to defer most of the taxes over their lifetimes.
How’d you do?
The main thing to understand is that assets are
transferred 3 different ways -
● by ownership,
● by beneficiary or
● by Will.
It doesn’t matter what the Will says, if the
asset will pass by ownership or beneficiary.
The bottom line: review your life insurance and IRA
beneficiaries, verify the ownership of your investments and home, and
make sure your Will is up to date. Because many times, your Will won’t.
If you have a specific question or would like more
information, give me a call toll-free at 1-877-827-1463 or you can also reach me by email at
jeff@guardingyourwealth.com.
I will answer your financial question FREE.
About Guarding Your Wealth:
“Guarding Your Wealth” is a
nationally syndicated weekly personal finance column written by Jeffrey
D. Voudrie, CFP. Mr. Voudrie is the President of Legacy Planning Group,
a private wealth management firm that employs sophisticated proprietary
strategies designed to protect and grow its clients' investments. Visit his website,
www.guardingyourwealth.com to read past articles under the Guarding
Your Wealth Article Archive that may not have appeared in
SeniorJournal.com.
Guarding Your Wealth for Seniors, on
SeniorJournal.com, is
a collection of columns by Voudrie that deal with issues of particular
interest to senior citizens.
Click here
for all columns.
In addition to being a nationally
syndicated columnist and Certified Financial Planning Practitioner, Mr.
Voudrie provides personal, private money management services to select
private clients
nationwide.
Looking for an energetic expert who
is passionate about financial and wealth management? Mr. Voudrie is an
excellent speaker who will excite and inspire your audience. Mr. Voudrie
is available for a limited number of speaking engagements, television
appearances and radio talk shows. For bookings, email
jeff@guardingyourwealth.com.
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