The Last Will and Testament (Will) is a document that states who is in charge after you have died and who gets what you have left, that is orphaned.
If you have no orphaned assets at your death, we do not use your Will. An orphaned asset is an asset with some type of title; registration; account, policy, or certificate number that has no way to get to whomever should inherit it. If you own real estate jointly with your spouse and your spouse dies, the asset is not orphaned. It still has a living owner. If you have life insurance, retirement account, investment account, or checking account with a named beneficiary who is living at your death, it is not orphaned. It goes to the beneficiary.
However, if the named beneficiary has died before you, or there is no joint owner, then the asset is orphaned. If you have a Will, the first question the court asks is: is your Will valid? If so, then it gets used. We only use a Will as a planning document when we plan to go through the probate process. (See next month’s article for a discussion of avoiding probate.)
If you do not have a Will, and you have orphaned assets, the state has a plan for you. It is based on blood relationship. If you are single with no children, your parents are first. If you are married without children outside the marriage, your spouse is first. If you are married, chances are you own everything jointly, and there will be no orphaned asset. Having a child is the trigger for the need for a Will. This will tell the court whom you want to take over care of your child, and it will provide a trust for the management of your child’s financial wellbeing until your child is old enough to start managing money on his or her own.
Think of it this way: if your child is orphaned, what was the likely cause? An accident? If so, there may be a large amount of money available to your child at the age of 18, unless you have dictated who would be in charge of it and at what intervals your child will be able to take distributions of his or her inheritance. This planning protects your child from friends, and unfortunately other relatives, who may be waiting in the wings to exploit their relationships for personal gain. It really happens.
