Couples come to my office and tell me it's time for them to write wills. I correct them and say what they need is an "estate plan." The change of terms is more than just lawyer-talk. People really do need a plan. That's because when you die, property passes to other people in three different ways. A will is one of those ways. A plan takes into account all three.
When you die, some property will pass to others because of the way it is owned. A husband and wife usually own their home in a type of joint ownership that allows it to pass automatically to the survivor when the first of the couple dies. I own a house like this with my wife. Let's say I never liked her that much, and I secretly write a will saying that nothing should go to her. When I kick the bucket, she still gets the house because it was jointly owned with a right of survivorship. Husband and wife often have joint bank accounts, and maybe joint brokerage accounts, that are owned with a right of survivorship. When one of them dies, the other gets the money. In a long term marriage it is common for all of the couple's major assets to be jointly owned.
Another way that property passes when you die is by contract. I have a contract with Flibinite Life & Casualty which says that if I die in a car wreck Flibinite will pay my wife a hundred grand. The contract is called life insurance, and when I bought it I filled out a beneficiary form naming my wife as the person to receive the death benefit. I also have an IRA retirement plan. The guy who set up that plan and loses my money in the stock market for me had me designate a beneficiary when I set it up. The beneficiary gets the money if I die before I can use it all up. Some stock accounts are controlled by beneficiary designation; so are 401(k) retirement accounts. Your bank account may have a "pay on death" feature. This is the same as a beneficiary designation. It is a contractual agreement to give a certain person the money when you are gone.
Beneficiary designations control the money no matter what I do with my marriage. Let's say this time, instead of writing a secret will, I divorce my wife and marry a twenty-two year old roller derby queen. If I don't change those beneficiary designations before I die, all those companies holding my cash are going to pay--according to contract--the woman I divorced. If the roller derby queen married me for my money, she is going to be royally pissed off at this. That is why I need a plan.
The third way that property passes is by will. Everything that did not go by joint ownership and did not go by contract, goes to the persons named in my will--that is, if there is anything left.
So think about this. Let's say a married couple writes wills that both say, I give everything to my loving spouse, but if he or she does not survive me I give it all to my children: Huey, Dewey and Louie. Then the husband kicks off. (Husbands always kick off first--an average of twelve years before wives.) The house is jointly owned; the bank accounts are all in both names; and the husband's fat retirement plan goes to the wife because she is named as the beneficiary. There is nothing left to go to the people named in the will.
Husband's will is now scrap paper, but think about wife. She no longer owns the house jointly. The bank accounts are all hers and she has collected the money from the retirement plan. When she dies, everything goes to the people named in her will.
I wrote two wills. One of them was a waste of paper, but the other one controlled everything. The estates of most middle class couples play out just like this. Although the men usually die first, no one can be sure. One of the wills will be important; one of them will not.
In an upcoming post, I will discuss the wife who outlives her husband, revokes the will written during the marriage, tells Huey, Dewey and Louie to kiss off, and moves to Argentina with the pool boy.