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2 assets that do not need to be included in your will

On Behalf of | Sep 1, 2023 | Estate Planning

The easiest way to leave most of your assets to your heirs is simply to put them in the will. You can use your will to divide up financial accounts, such as a savings account, a checking account or an investment portfolio. You can name who is to inherit your sentimental property.

But it’s important to avoid assuming that all assets must be included in your will or that you have no other options. There are alternatives, some of which may actually streamline the process of distributing your property and be more effective than using a will alone.

A life insurance policy

Perhaps you’ve purchased a life insurance policy for your beneficiaries. This could be incredibly valuable, but it doesn’t necessarily have to pay out into your estate. You can choose a beneficiary in advance. When you buy the policy from an insurance company, tell them who the beneficiary will be, and they will directly pay that person once you pass away. Nothing has to happen in your will because the funds do not enter your estate at all.

In fact, addressing your life insurance into your will can create problems. For instance, say you have one heir when you buy the policy, so you name them as the beneficiary. Another heir is later born, so you update your will to say that the two need to split the insurance money. But the beneficiary doesn’t technically have to follow those instructions, because the beneficiary designation trumps the estate plan.

A payable-on-death (POD) account

You can also designate your bank accounts or other financial accounts as POD accounts, which are payable on death. Once again, you choose a beneficiary who will take over control of the account. When your beneficiary presents evidence that you have passed away to the financial institution, the account automatically shifts into their name. You don’t have to put the account in your will to transfer the funds because that beneficiary automatically becomes the owner of the account upon your passing.

These are two examples of how estate planning may be a bit different than what you may have expected. And this reality is just one of the reasons why it’s so critical to understand all of the legal options you have available to you and how to exercise them effectively.