When individuals consider how assets pass upon death, they immediately think of Wills (and perhaps Revocable Trusts for probate avoidance). What often times is not considered, and even misunderstood, is that even if individuals have executed valid Wills, their wishes may not be respected.
Consider this example: Mr. Decedent provides in his Will that current wife Number 2 shall receive all his assets upon his death. Further, if Wife Number 2 predeceases him, the assets shall pass equally to his two children from his prior marriage. His primary assets are his $1 million insurance policy which still lists his first wife as the beneficiary; his IRA, which names his two children as beneficiaries; and his residence, where the Deed names only his oldest child as a joint owner with right of survivorship.
Mr. Decedent does not realize that assets that pass by beneficiary designation (e.g., IRA’s, 401(k)’s, life insurance), or by title if there is a joint owner with right of survivorship (e.g., house, bank or brokerage account), supersede any provisions contained in a Will. Therefore, under the facts above, absent state law to the contrary, wife Number 1 receives the life insurance, the children receive the IRA, and the house passes to his oldest child. There are not many assets left to go to current wife Number 2. Further, even if current wife predeceases Mr. Decedent, the oldest child still receives the residence – it is not divided evenly among the children.
The moral of the story is you cannot do estate planning without focusing on how your assets are titled and the asset beneficiary designations. Those titling and beneficiary designation decisions are as important to the planning process as provisions in the Will. Other posts will touch on the probate avoidance and tax planning aspects of these decisions.