[vc_row][vc_column width=”1/1″][vc_column_text]Many Last Wills and Testaments do not address distribution of assets. Here is an example:
Bob and Jane are in their 60s and have been married for 10 years. They each have kids from previous marriages. Bob sets up his will to provide that 1/3 of his estate goes to his kids and 2/3 goes to Jane, his second wife. But when Bob dies none of his assets pass to his kids.
Bob’s assets were:[/vc_column_text][fancy-ul icon_type=”standard_dash” icon=”icon-glass” color=”Accent-Color”]
- Joint checking account
- Joint savings account
- CD titled in both names with “or”
- A life insurance policy with a beneficiary designation naming his wife
- A small government pension fund with a beneficiary designation naming his wife
- An IRA with a beneficiary designation naming his wife
- A personal residence that was purchased after he and Jane got married and was put in both names as “joint with right of survivorship”
- A new, $35,000 Toyota Avalon
[/fancy-ul][vc_column_text]In Bob’s will, he had a provision that left his “personal property” to his wife, which included all of his jewelry, collectables, household furnishings and his new Toyota Avalon. The “rest and residue” of his estate (everything else, including stocks, bonds, real estate, etc.) was to pass 1/3 to his kids and 2/3 to his wife. However, the way he titled his assets negated the provisions of his will.
His personal residence was held with his wife in “survivorship,” which means at his death, it automatically went to his wife as the survivor. All of the joint bank accounts were set up as “survivorship,” so all of those accounts went to his wife and were not impacted by his will. Bob’s life insurance, pension, 401(k) and IRA plans were all set up with beneficiary designations that left them to his wife, with his kids as secondary beneficiaries. None of these accounts are controlled by his Last Will and Testament.[/vc_column_text][divider line_type=”No Line” custom_height=”40″][vc_text_separator title=”Taxing of Assets” title_align=”separator_align_left”][vc_column_text]Another consideration in how assets are titled lies in how taxes are paid. If Bob had assets of $150,000 in his own name but Bob and Jane only lived together for 10 years and were not legally married, some fairly significant state inheritance taxes will be due in most states. It would not be uncommon for the tax rate to be as much as 16% for assets passing to Jane. If Jane has more than $1 million coming to her via 401(k)s, IRAs, etc., it could trigger an inheritance tax that would more than eat up the $150,000 of assets that were in Bob’s name, at least $50,000 of which were intended for his children. Bob’s entire probate estate of $150,000 will be used to marshal the assets to pay the inheritance taxes. In other words, the kids end up bearing Jane’s tax on assets that were intended to come to them.[/vc_column_text][/vc_column][/vc_row]