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Good Estate Plan Involves More Than the Execution of a Will & Trust

01.30.08 written by

Estate planning involves the development of a plan to ensure that your assets pass at your death to the beneficiaries of your choice at the lowest possible estate tax cost and in a form which best meets your desires and the recipients’ needs. A good estate plan involves not only the execution of a will and possibly a trust, but it also needs to incorporate how your assets are titled and who is named as a beneficiary of those assets.

How your assets are titled and who you name as a beneficiary of your assets takes precedent over the terms in your will and trust. The titling of your assets and the naming of your beneficiaries is crucial and if done incorrectly, can change who your ultimate beneficiaries will be or how much they will receive from your estate. Over the past few years, I have seen a number of situations where the titling of an individual’s assets or the naming of beneficiaries of assets has not been done in conjunction with the execution of a will or trust. This has led to an individual’s assets being distributed to unintended beneficiaries or to beneficiaries disproportionately even though that was not the intended result. This situation can involve bank accounts, real estate, life insurance proceeds, or retirement assets. A typical scenario involving bank accounts is as follows:

Betty, age 70, has just executed a will naming her only two sons, Joe and John, as her beneficiaries. According to the terms of her will, each son will receive 50% of her assets upon her death. Betty’s assets consist of a savings account ($50,000) and several certificates of deposit ($50,000). Thus her total estate is $100,000 and she intends her two sons to each receive $50,000 upon her death. All of the accounts are in Betty’s sole name. One day, Betty goes to the bank and decides that she needs to put either Joe’s or John’s name on all of her accounts so the sons will be able to access her funds if she becomes incapacitated. Betty does not drive, so Joe takes her to the bank since John is working. Betty instructs the bank employee to add Joe to all of her accounts since he usually has more free time, is currently with her, and can sign the necessary paperwork for the account titling change. Unwittingly, Betty names Joe as a joint owner with right of survivorship on all of the accounts. Ohio law provides that upon Betty’s death, all of the funds remaining in the bank accounts will pass directly to Joe. That means that upon Betty’s death, Joe will receive $100,000 and John will receive $0, which is really not Betty’s wishes. 

The moral of this story is that in order to make sure that your wishes are followed in your estate plan, in addition to executing a will and a trust, make sure that you review how all of your assets are titled, who you have named as beneficiaries of all of your assets, and that you understand exactly how your ownership and beneficiary designations will effect the ultimate disposition of your assets upon your death. 

NOTE: This general summary of the law should not be used to solve individual problems since slight changes in the fact situation may require a material variance in the applicable legal advice.