February 2001
Elder Law: Alternatives to a Will: "Will Substitutes"

In previous columns, I have discussed wills in several different ways: reasons why a will is sometimes preferable to a trust ( Why NOT a Trust?, October 1999); the risks in changing your will (Be Careful When Amending Your Will, May 2000); and the use of handwritten wills ( Holographic Wills, September 2000).

This month I will present the reader with alternatives to a will, sometimes referred to as “will substitutes.” These will substitutes are widely used, although most individuals do not understand the limitations of using them. While these devices can avoid the need for a will or for probate, they also have inherent risks associated with them.

One of the most obvious will substitutes is created when you specify a beneficiary on your life insurance policy. The named beneficiary on the policy receives the insurance proceeds without any need for a will or for probate. You can name one or multiple beneficiaries, and you can specify different percentages for each beneficiary.

Similarly, beneficiaries can be named on retirement accounts such as a 401(k) account or an IRA account.. Again, you can specify equal or unequal amounts for each beneficiary. You can also generally specify a primary beneficiary and a secondary beneficiary; a secondary beneficiary being entitled to the proceeds only if the primary beneficiary is deceased at the time of your death.

Checking and savings accounts also permit you to designate a “pay on death” beneficiary. These are often referred to as POD accounts.

By designating beneficiaries on your various accounts, you can effectively transfer your liquid assets upon death. However, there are limitations and risks associated with these will substitutes. First, the financial institution (bank or insurance or investment company) may limit you to primary and secondary beneficiaries and may allow you to only specify percentages to each beneficiary.

But, for example, what if you want your child’s share to go to his or her children (i.e., to your grandchildren) in the event that your child predeceases you? In a will, precise language is used to provide for that kind of distribution under those or any other contemplated events.

If you merely list your child or children as beneficiaries on your account and one of them predeceases you, that child’s share will go to that child’s estate. Subsequent distributions most likely will go to the spouse of that child or as directed by that child’s will. That is, your intentions may not be fulfilled. The use of a will can avoid this type of unintended distribution.

Managing your various accounts and changing beneficiaries or the percentages to each can be a real chore. More importantly, you may forget to change all accounts, and the distribution of your estate will not necessarily reflect your wishes. This is where a will has the advantage.

If all of your accounts are simply poured into your estate upon your death, your will can effectively distribute your estate. When you want to or need to make changes to the distribution of your estate, you merely change one instrument: your will. Since your will does not need to contain the details of your precise accounts, you can freely change accounts without modifying your will. Best of all, you do not have to worry about changing the list of beneficiaries on all accounts.

So, if you have only one account, using a POD account may make sense. If, however, you have multiple accounts, a will may be easier to manage and ensure that your intentions are fulfilled.

Before deciding not to have a will, it is best to contact an Elder Law Attorney. To locate an Elder Law Attorney, check with the National Academy of Elder Law Attorneys at (520) 881-4005, or your local Yellow Pages.

YOUR QUESTIONS: Do you have a particular question that you would like answered? To better serve the readers of the Utah Spirit, please direct your questions in writing to Michael A. Jensen, Elder Law Attorney, PO Box 571708, Salt Lake City, Utah 84157-1708, or by e-mail at: mike-spirit@utahattorney.com. From time to time, I will attempt to answer some of those questions.