Mar 24, 2008

Can Dad Do That? Wills Don't Cover Everything

Family with siblings Every now and then, I get a call from someone whose parent has recently passed away, leaving behind a will that leaves everything equally to all the children. Except -- and this is the reason for the call -- a bank account, or a house, or a retirement plan, or a life insurance policy that was left to just one brother or sister. The first question they have is whether this is legally possible: "Can Dad have done that?" they ask plaintively. After all, the will, they point out, left everything equally to all of the children -- how could something be given to just one of them? The answer is that Dad was perfectly entitled to leave an asset like a bank account, a brokerage account, a house, or a retirement plan to a specific child, regardless of what his will said, because wills only govern the distribution of some, but not all, of the assets that a person owns. (Though spouses have certain legal duties towards each other, there are no such protections for children.) Retirement assets and life insurance benefits go to the person designated as the beneficiaries of those plans. If Dad named his youngest daughter, Grace, as the beneficiary of his IRA or life insurance policy, the money is hers, and she has no legal obligation to share it with her siblings. The way in which an asset is legally owned, called its title, can also determine the person who owns it after somebody dies. If Dad had placed Grace on the title to his home or bank account as a joint tenant, she would be the sole owner of that property upon his death. Owning property in joint tenancy means that when one owner dies, the other automatically owns the entire asset by what lawyers call the "right of survivorship" and no probate is required to transfer the asset. And many bank and brokerage accounts can be transferred at death to a named beneficiary as well. If Grace had been the sole caretaker of Dad during his last illness, and he had wanted to reward her for her selfless dedication, he might also have left her one of his bank or brokerage accounts by making that account a transfer-on-death (TOD) or a payable-on-death (POD) account. By filing out a simple form at the bank or brokerage company's office, he could have designated Grace as the sole owner of the account upon his death. Again, such a designation would trump his will.

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