A Will is Not an Estate Plan

You often see articles in the popular press – some even written by lawyers – stressing the importance of having a will.  While telling people that they need a will is good advice, it is incomplete advice.  It is critical to understand that a will is not an estate plan.  That is because many of your assets – indeed, perhaps some of your most significant assets — will not necessarily pass under the terms of your will.  For example:

  • Life insurance policies pass pursuant to beneficiary designation forms that are supplied by the insurer, not necessarily pursuant to your will.
  • Retirement accounts (including IRAs, 401(k)s, and 403(b)s) also pass pursuant to beneficiary designation forms.  Having a retirement account pass through your will (by naming your estate as the beneficiary) can sometimes result in undesirable income tax consequences for your survivors.  This is a very technical but very important issue; a good estate planner should be familiar with it, and should be able to plan around it.
  • If you own an asset jointly with someone else, depending on the type of joint ownership, your interest might pass by operation of law to the surviving owner(s) at your death, rather than through your will.
  • These days, many people add a “transfer on death” or “TOD” designation to their investment accounts.  If you have added a TOD feature to a brokerage or other investment account, the account will pass at your death to the person(s) listed on the TOD agreement, not pursuant to your will.
  • If you establish a trust during your lifetime, the trust assets will pass at your death pursuant to the trust’s governing document, not according to your will.
  • If you are the partial owner of a business, it is possible that the business’ governing documents will specify what will happen to your interest at your death, and that your interest will not pass through your will.

It is absolutely critical that all the pieces of your estate plan be coordinated with one another so that your overall plan works as intended.  Your estate planner and you should discuss life-insurance beneficiary designation forms, retirement-plan beneficiary designation forms, joint ownership of assets, TOD accounts, trusts and business interests with you – otherwise, you risk having some of your most significant assets pass in ways that you did not intend.

It bears repeating:  A will is not an estate plan.  Be wary of anyone who claims that it is.