Significant Assets Not Covered By Wills

Even if an individual creates a well drafted will, he or she may unintentionally disinherit intended beneficiaries from large portions of his or her estate by failing to take proper steps regarding non-probate assets.

One such asset is a 401(k) plan. A surviving spouse is automatically entitled to the entire account, regardless of what a will states. If an individual wants the account to pass to someone other than his or her spouse, the spouse must file a written statement waiving his or her rights to the account. Additionally, a prenuptial agreement will not resolve this issue because, until a person is actually married, he or she cannot give up his or her spousal rights to a 401(k).

Another non-probate asset is an IRA. Unlike 401(k) plans, IRAs do not automatically revert to a surviving spouse in most states. However, similar to 401(k) plans, an individual’s will has no bearing on who will inherit the IRA. The beneficiary of the IRA is the named beneficiary on the beneficiary form, regardless of how long ago the beneficiary was named. Prior to marriage, an individual can roll a 401(k) account into an IRA. However, after marriage, the individual cannot transfer the 401(k) assets into an IRA and then name a new beneficiary without first obtaining the spouse’s written consent.

Life insurance is yet another significant non-probate asset. Regardless of what an individual’s will states, the beneficiary of the insurance proceeds is the named beneficiary on the beneficiary form. It is imperative than an individual diligently review beneficiary designations to ensure that his estate passes in the manner he sees fit.

See Janice Revell, Your Will: Hidden Traps, CNN Money, Aug. 11, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention.