You probably know that a will is the most fundamental part of any estate plan, but did you know that a will doesn’t have to be the only component in your plan? A will can achieve many things, including the distribution of your assets to the appropriate heirs. However, a will can’t do everything, and there may be some goals best accomplished through a range of other documents known as will substitutes.
Simply put, a will substitute is a document or tool that acts in place of a will in the estate distribution process. A will substitute may apply to your entire estate or to specific assets. Some will substitutes are strictly estate planning tools, while others are financial tools that can also be used for other purposes.
Do you need a will substitute as part of your estate plan? It depends on your needs and goals. However, if you want to pass assets on to your heirs quickly and at minimum expense, there’s a possibility that a will substitute could be right for you.
What is a Will Substitute?
The term “will substitute” is a broad term that applies to a diverse range of tools and documents. Some popular examples of will substitutes include:
Trusts. A trust can be a powerful estate planning tool to protect your legacy and your heirs. Assets inside a trust avoid the probate process, which can be time-consuming and costly. You can also use a trust to retain control over your assets after you pass away. For example, your trust could dictate the terms or schedule for your heirs to inherit their assets.
Joint ownership. Some assets or accounts may allow you to name a joint owner. Then, when you pass away, the property is simply passed to your co-owner. Again, this strategy allows the asset to bypass probate. This can be a useful approach for things like bank accounts and real estate. You may also want to consider payable-on-death (POD) designations, if available.
Beneficiary designations. Some assets, such as life insurance, annuities and IRAs, are distributed through beneficiary designations. You name one or several beneficiaries on the particular asset. When you pass away, the account administrator distributes the death benefit directly to the named beneficiaries. Again, this approach avoids the probate process.
What are the Benefits of Will Substitutes?
There are two primary benefits to using a will substitute. As you may have guessed, one of the biggest is the avoidance of probate. That’s the legal process for settling one’s estate, and it often involves tasks like paying debts and liquidating assets. Since it can be costly and can delay asset distribution, you can help your heirs by limiting the amount of assets that pass through probate.
Another benefit is that a will substitute may make for a more efficient distribution tool than a will in some cases. For example, assets with beneficiary designations are often paid quickly. That kind of fast distribution could be helpful to your loved ones during a time that will undoubtedly be stressful and emotionally challenging.
Ready to develop your estate plan? Let’s talk about it. Contact us at TB Financial today. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation.
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.
16995 – 2017/9/25