This is an article from Hunter Law Office (www.hunterlawoffice.net) in Fishers, Indiana, that we thought others may find helpful.
I get this question often and the answer is likely not what you think!
First, it’s important to differentiate between a Will and a Trust. A Last Will and Testament is a document that controls assets that are individually held after someone passes and it primarily does two things: 1) Names who is “in charge” and 2) Names who gets your “stuff.” On the other hand, a Trust is a document that controls assets that are trust-owned while someone is living and after someone passes.
At first, it appears that at someone’s death there would be two documents that would “control” if the individual had a Will and a Trust … and that seems contradictory, and scary, and confusing! Consider the possibility that having a Will and a Trust control at someone’s death is a good thing and here are three reasons why:
- You forgot about an asset. I know it seems far-fetched, but I promise you that it happens! For example, let’s use my nephew’s savings account. My parents created a savings account for him at a young age – you know, because he is saving every single penny for that Lamborghini – and it is in his name alone. Assume that later in life, he does his own estate plan and creates a Trust, but he forgets about the savings account. Suppose that the account never gets funded into his Trust. Upon his passing, the Will would control because the account is in his name alone.
- You “ran out” of beneficiaries on an IRA. Retirement accounts have to be owned by an individual; they cannot be owned by a Trust. Therefore, with a Trust involved, we often make the Trust a primary or contingent beneficiary of the account – all depending on the client’s specific situation. However, suppose that a spouse and a child were the primary and contingent beneficiary, respectively, and a Trust was not listed at all. If something happened to you and your spouse and children had predeceased you, the Will would control because there are no beneficiaries listed that are still living.
- Your estate becomes the beneficiary of another person’s estate. While this seems far-fetched too, it happens! Say, for example, Person A passed away three years ago and Person B passed away two years ago. In Person A’s estate plan, he leaves his estate to Person B as long as Person B survives him. In all technicality, Person B did survive A. Therefore, Person B’s Estate became the beneficiary of Person A’s Estate, and Person B’s Will would control because those funds came into Person B’s name alone.
All in all, it is important to always remember to think “big picture” when doing an estate plan. What if this happens? What if that happens? But oh no, what if THIS happens? The really good news, however, is that you do not have to worry about any of this. It is our job to think of all the possibilities (even the off-the-wall ones like above) to make sure you are taken care of and nothing is forgotten about. In fact, I believe that there is no greater compliment than to hear a client say, “My plan is done. I can rest easy now!”