Keeping Some Assets Out of Your Will

Everyone should have a will. Even if you don’t own much, you probably own more than you think. If you have a house, a car, a checking account, a money market account, a few mutual funds, and an IRA, your assets might total a million dollars, or more. If you do not have a will, the state will decide who gets your property when you die. If you have a will, you make the decisions.

When There Is No Will

It is possible to pass on your property without a will. If you plan ahead, some assets pass to your heirs outside your will automatically. For example, real estate owned in joint tenancy with right of survivorship passes to the co-owner; life insurance proceeds pass to beneficiaries; anything contracted to pass to another, such as your business to your business partner, passes automatically; and bank accounts and other investments with a TOD (transfer on death) provision—pass to a beneficiary of your choice.

Use a Revocable Living Trust to Avoid Probate

Should you list other assets--such as jewelry, artwork, furniture, electronic equipment, or cash--in your will or find another way to transfer them to your beneficiaries? To handle property that does not pass automatically, many people set up revocable living trusts, with the assistance of an estate attorney, to avoid the lengthy probate process a will must go through before any bequests are transferred to beneficiaries.

A revocable living trust, also called an inter vivos trust, is set up during your lifetime. Ownership of the assets you choose to place in the trust will be transferred to the trust itself. Unlike a will, which goes into effect when you pass away, you transfer your properties to a living trust while you are still alive and the trust continues to hold the property for your beneficiaries after you die. Although you no longer own the assets once they are placed in a trust, you have access to those assets during your lifetime. You may serve as your own trustee and instruct your trust to pay income to you. You also may choose to revoke the trust at any time. On your death, your successor trustee must divide up whatever remains in the trust for your beneficiaries, according to your instructions. With no probate, the property can be distributed immediately. (Read our discussion on the Relationship Between a Will and a Trust for more information.)

Using a Will - Even if You Have Other Estate Planning Vehicles

If you put all your assets that do not otherwise pass automatically to your heirs into a revocable living trust instead of a will, you may still need a will. Here’s why:

  • If you acquire property after setting up the trust (called residual property), the state will decide who receives it if you do not have a will.
  • If you have minor children, a will allows you to choose a personal guardian to care for them if you die before they turn eighteen. Without a will, the court will choose the guardian.
  • Young couples with minor children may want to save money, so instead of a revocable living trust, set up a testamentary trust created in their will.
  • A will allows you to name an executor to manage the distribution of any assets in your will and pay off your debts. If you have no will, a court will appoint an administrator to perform these duties.