A will is a very important part of your estate plan, but it’s not the only tool in your estate planning toolbox, explains the article “Protecting Your Assets: Joint Accounts and Beneficiary Designations” from The Street. That is because the will goes through probate, wills control assets that are in your name only, and lastly, if you don’t have a will, the laws of your state will create a will for you. You may not like the distribution, but you won’t be there to see what happens.

As an alternative to a will and probate, some people name their children as beneficiaries for assets. Sometimes this can work, but it’s not always the best solution.

Here’s an example. A family includes two spouses and three children. They own a house, a bank account, IRAs and life insurance policies. The spouses have individual wills, leaving everything to each other and equally to their children upon both of their deaths.

The wills also state that, if a child predeceases them, that child’s share goes to the child’s children. This is known as “per stirpes,” and means that the child’s share of the parent’s estate is passed to the next generation. The spouses also list each other as joint owners and beneficiaries and then their children as contingent beneficiaries on all of their financial accounts. Then the husband dies.

His will does not come into play, because his wife was listed on everything as a joint owner, so all of the assets pass to her. Then the wife dies. The will won’t come into play here either, since all of her living children were named as beneficiaries. If the wife had signed a quit claim deed, giving the children ownership of the family home, before she died, the will and probate are bypassed as well.

However, it’s never so simple. What if the adult daughter was on the bank account and she is sued? The assets are now vulnerable to the party suing her. If she files for bankruptcy, the assets could be attached by the bankruptcy court. If she gets divorced, they are marital assets and could be taken by her spouse.

This arrangement becomes more complicated when people attempt workarounds, like putting the good son who isn’t yet married and takes excellent care of his finances as the sole beneficiary. If the parents die and the son is the only beneficiary, there’s no law that says he has to share his inheritance with his siblings. This scenario is likely to lead to litigation and lasting family fractures.

If you need another situation to convince you of the perils of alternatives to using a will, try remarriage.

If the wife dies and the husband remarries, he may want to leave his assets to his new wife. However, then when she dies, he wants his estate to go to his children. What if he dies and she decides she doesn’t want to name his children as beneficiaries on the accounts that she now owns? She is well within her legal rights to put her own children on the accounts, and when she dies, the husband’s children will get nothing.

People with the best intentions often create terrible financial and legal situations for loved ones that could easily be avoided, by simply working with an estate planning attorney to create an estate plan.

Reference: The Street (Oct. 30, 2020) “Protecting Your Assets: Joint Accounts and Beneficiary Designations”