Assets That Ignore Your Will

Imagine you’ve paid thousands of dollars to meet with an attorney and sign a will, but when you pass away, your intentions are not followed—and the wrong people inherit your hard-earned money. This type of nightmare scenario is surprisingly common, and it can easily happen if you are not aware of the types of accounts that bypass your will entirely, passing directly to beneficiaries or joint owners. For retirees and high-net-worth professionals, knowing these distinctions is crucial for effective estate planning. Let’s explore what types of assets ignore your will altogether.

Retirement Account with a Beneficiary

Retirement accounts, such as 401(k)s, IRAs, and pension plans, usually come with a beneficiary designation rather than passing through a will. Sometimes these beneficiary forms are completed when the account is first opened, then locked away and forgotten for years. The named beneficiaries, however, receive the assets directly upon the account holder’s death, regardless of what’s stated in the will. 

That’s why it’s important to periodically review and update your beneficiary designations to ensure they align with your current wishes. If no beneficiary is named, the account may default to your estate. In that case, a will would usually govern—but without a beneficiary, the distribution process may be costlier and more complicated than necessary. Plus, updating beneficiaries is a simple process that can avoid the legal fees of changing a will.

» Glassman Pro Tip: If charity is part of your estate plan, consider naming a charity or Donor-Advised Fund as a beneficiary for your pre-tax retirement accounts. This can be a great way to avoid income tax on a pre-tax asset while still maintaining the flexibility to change your beneficiaries later, if you wish.

Life Insurance

Life insurance is another type of asset that usually ignores your will. Life insurance policies typically have a named beneficiary or beneficiaries, similar to retirement accounts. By naming a primary beneficiary and contingent beneficiaries on these types of accounts and policies, it can be easy to make sure your intentions are followed. But do keep your beneficiaries updated as your intentions change. 

» Glassman Pro Tip: As your life changes, it’s important to keep your beneficiary forms up-to-date. Key life events that should make you pause and reassess your plan include marriages, births, deaths, divorces, and others.

Trusts

Trusts are powerful tools for managing and distributing assets according to your wishes, independent of your will. In fact, many high-net-worth individuals use trusts to intentionally avoid having assets flow through their will and thus being subject to probate, the public process by which the distribution of a will is overseen through the court system. Trusts are frequently used to avoid probate, provide additional privacy, and help with complex asset distribution plans.

There are many types of trusts, but they generally fall into two categories: revocable and irrevocable. Revocable trusts allow you to retain control and make changes during your lifetime, while irrevocable trusts transfer control to a trustee and cannot easily be altered or revoked. The key is that if assets are titled in trust, the distribution follows the terms of the trust agreement rather than your will. This is one of the key benefits of a revocable trust.

» Glassman Pro Tip: When it comes to key considerations such as whether a trust is appropriate, how to structure a trust, and how to choose a trustee, a qualified estate attorney can be invaluable. If you do not already have an estate attorney, your Glassman advisory team can help you find one.

TOD and POD Accounts

Transfer on Death (TOD) and Payable on Death (POD) accounts are straightforward mechanisms to transfer assets outside of a will. TOD accounts, typically used for securities and brokerage accounts, allow you to name a beneficiary who will automatically inherit the assets upon your death. POD accounts work similarly for bank accounts. These designations are easy to set up, and they provide a clear, direct path for asset transfer. Adding POD or TOD instructions to an account can also avoid probate, and they can be easily changed in the future.

Joint Accounts

If they have survivorship rights, joint accounts also ignore your will when there are surviving account owners. Joint accounts can come in several forms, including:

• Joint Tenancy with Right of Survivorship (JTWROS). In JTWROS accounts, co-owners have equal rights to the entire account. Upon the death of one owner, the assets automatically transfer to the surviving owner(s). This bypasses the will and probate process entirely.
• Tenants by the Entirety (TBE). TBE accounts are similar to JTWROS accounts, but in certain cases they can offer additional creditor protection to the account owners. Like with JTWROS, the surviving account owner usually retains the assets after the first to die, ignoring a will and probate.
• Tenancy in Common (TIC). TIC accounts are different. They allow each owner to hold a specific percentage of the account. Upon death, the deceased owner’s share is distributed according to their will, not automatically to the surviving owner(s).

Understanding these distinctions can help you tailor your estate plan, in consultation with a qualified attorney, to your specific needs and goals. At Glassman Wealth, regularly reviewing and updating beneficiary designations, account titles, and trust agreements are all part of ensuring your assets are distributed according to your wishes. Our goal is always to provide peace of mind for you and your heirs.