5 ways to leave your family money outside of your will

PFI Disclosure 1

A will is a crucial piece of any estate plan.

Along with listing your assets and who should receive them, it names a guardian for any minor children and an executor to oversee the probate process.

However, not all of your assets need to be included in your will to successfully pass to your spouse, children, or other family members when you die. Despite being called your “last will and testament,” it’s not always the final word. Any financial contract, such as a bank account or insurance policy, that names a beneficiary is known as a will substitute, meaning it has the power to supersede what’s written in your will if it’s contradictory.

For example, if your will says your husband should receive all your assets, but your daughter is named as the beneficiary within your life insurance policy, the latter stands. This is one reason why it’s so important to stay up to date on beneficiaries, particularly after big life changes, such as marriage, divorce, or death.

Here are five ways to leave your family money that don’t need to be included in your will.

1. Life insurance

The purpose of a life insurance policy is to provide someone with money upon your death. Whether you buy a policy on your own or sign up for coverage through your employer, you’ll be asked to choose a beneficiary. This person will receive all or part of the death benefit if you die during the covered term. The courts and creditors cannot access that money — it will go directly to the beneficiary. 

If you choose more than one beneficiary, you can decide how much will go to each person. You should also name a back-up beneficiary in the event you outlive your first or second choice. If you fail to name a beneficiary on your life insurance policy, the death benefit will likely be paid to your estate and have to go through probate before any of your loved ones can get access to it.

2. Retirement accounts

Retirement plans ask you to name a beneficiary as well because these accounts have a transfer-on-death (TOD) designation. When the account owner dies, the money is generally either paid out in a lump sum or taken as an annuity by the beneficiary.

However, the rules are different for spouses and non-spouses and there are varying tax implications, so you may want to talk to a financial planner (SmartAsset has a free tool to find one, if you need) or tax adviser about the best way to name beneficiaries to make sure the money goes exactly where you want it to.

Other non-retirement investment accounts that hold stocks, bonds, or mutual funds can also be transferred upon the death of the owner to a named beneficiary.

3. A trust fund

A trust establishes a veritable plan for transferring money and property to heirs, managing estate taxes, and giving to charity. It stands as a completely separate entity from your will and is sheltered from probate. As such, the assets held in a trust — which can be anything from investment accounts to real estate to a fine art collection — are transferred to beneficiaries upon your death according to your exact wishes.

Notably, a trust can name beneficiaries who will receive income or assets while the trust owner is still alive, and another set of beneficiaries to inherit the remainder after their death.

4. Payable-on-death accounts

Money held in bank accounts are generally subject to probate unless the account is placed in a trust or holds a payable-on-death (POD) designation. 

You can convert any deposit account, such as savings or checking, into a POD account by contacting your bank and naming a beneficiary. Upon your death, that person will automatically become the owner of the account. The money will not be subject to the probate process, though it may be accessible to creditor claims. 

5. Rights of survivorship property

Joint bank and investment accounts and jointly held real estate can be designated with “rights of survivorship” to avoid probate and allow for a swift transition of ownership.

This means that when one owner dies, the surviving member inherits their share, regardless of what’s written in their will. Again, property that passes to the joint owner avoids probate and is not accessible to other beneficiaries of the deceased person’s estate or creditors.

Policygenius can help you compare life insurance policies to find the right coverage, at the right price »

Click to comment

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Most Popular

To Top