Company Logo
Website Banner

From the Financial Hotline

By: Financial Hotline
Spring 2023 (Vol. 41, No. 1)

Q: I have recently gotten re-married and was thinking I need a Last Will and Testament to make sure my new spouse is protected. Where do I start?

A: First, Congratulations and best wishes! A lot of people get anxious about drafting a Will but, most have already bequeathed the bulk of their assets. Assets such as life insurance proceeds, investment accounts, jointly titled real estate assets, assuming they were titled as joint tenants with right of survivorship, and any asset that you have named a beneficiary for will pass to those heirs outside of a will.

Most retirement accounts like IRAs, 401(k)s, 403(b)s and others require you to name a beneficiary when you set up the account. If your bank didn’t ask you for a beneficiary, you can contact them and probably arrange for that to be added. Drafting a will won’t override these designations so it’s a good idea to review each account and update beneficiaries if your wishes have changed.

It is common for a remarriage to accidentally disinherit children or the new spouse. For example, if you take title to real estate with your spouse (with rights of survivorship) and add them to your bank account, the spouse will inherit one hundred percent of those assets regardless of what your will says. On the other hand, even if everyone knows you meant for your new spouse to inherit your retirement accounts, if the beneficiary is still listed as your ex-spouse or your child, the account belongs to the beneficiary.

Q: What’s the difference between a Will and a Trust?

A: Wills are simple, inexpensive, and easy to change. However, they are public and asset distribution requires probate which can be lengthy and expensive for your heirs. Trusts are more complex and may cost more to set up. But they are private, and assets don’t have to go through probate. Wills also don’t go into effect until you pass away, whereas a Trust is effective immediately upon signing and funding it.

Many people use a Will to designate guardians for their kids and pets and make burial wishes known. You can also use this to name your chosen executor, communicate final wishes, and bequeath personal items, vehicles, and any assets that don’t already have a beneficiary. If you already have named beneficiaries or joint owners with rights of survivorships on all your assets, you may only need a will.

However, if you want more control over how your assets are managed and distributed, a Trust is a useful tool that also eliminates probate. When you create a Trust, you need to fund it by transferring assets to it, making the Trust the owner. By taking assets out of your name, a Trust can help you qualify for medical or other assistance. If you leave an asset to someone who is underage or dependent on government aid, the Trust can be set up to oversee a payment schedule that is more beneficial to their specific needs.

Q: What is a pour-over will?

A: A pour-over will is typically used with a Trust and designed to catch any assets that got left out of a trust. This documents usually contains language that clearly states: any assets or property that are not in the Trust at the time of death, and that do not have a named beneficiary, should be transferred to the Trust after you pass.

Q: What is the difference between a Living Will and a Health Care Proxy?

A: A Health Care Proxy and Living Will are both estate planning documents that are usually used together. When combined they make up your Advance Directive - tools that allow you to direct how your medical decisions should be made if you become incapacitated. A Health Care Proxy, also called a Medical Power of Attorney, is a type of estate planning document that allows you to appoint a proxy (an agent) to make medical decisions on your behalf if you were to become incapacitated. How does your Health Care Proxy know what decisions you would make? That’s where the Living Will comes in. It’s an estate planning document that allows you to leave your instructions for your future medical care, plus any end-of-life decisions to be made. Both documents are durable throughout your lifetime, and only go into effect if you are deemed incapacitated by your attending physician.

It’s important to note that a Health Care Proxy cannot override any provisions made in a Living Will. A Living Will is legally-binding and must be followed. Therefore, it is helpful to both the Proxy and the medical care team if the Living Will is detailed and specific as possible.