Proceed With Caution When Will Substitutes Are Involved

“Will substitutes,” as the name suggests, allow individuals to accomplish, in part, what they could otherwise address through a will—the identification of the recipient of a decedent’s property at death. Unlike the case of assets passing under a will, the assets disposed of by a will substitute do not become part of the decedent’s probate estate and, by definition, do not pass under the terms of a decedent’s will (or in the absence of a will, under the intestacy laws). Will substitutes can include revocable living trusts, joint tenancies, multiple-party bank accounts, payable-on-death accounts, transfer-on-death accounts, Totten trusts, life insurance policies, annuity contracts, retirement plans and IRAs, and each will substitute disposes of assets by its own separate method. Given that assets may pass at death in any number of ways, whether under a will or under one or more will substitutes, clients should proceed with caution to make sure that their estate-planning documents properly dovetail so that all of their assets pass to the right beneficiaries and in the right way.

A revocable living trust is the most akin to a will because it provides the grantor with a mechanism to include finely tuned dispositive and administrative provisions according to his or her wishes. A revocable living trust only helps to avoid probate (or reduce the assets passing under the probate process) to the extent that the trust was funded during the decedent’s lifetime (this may be advisable in certain jurisdictions, such as Florida, where the probate process can be particularly expensive and burdensome). Generally, a revocable living trust is drafted in conjunction with a “pour-over” will so that any assets that were not transferred to the trust during lifetime would ultimately be “poured” into the trust after death and administered and disposed of in accordance with the provisions of the living trust. Most often a will and revocable trust are drafted to be well coordinated, so each time a change is made to either the will or the revocable trust, the other document will typically need to be thoroughly examined to make sure that they remain consistent.