An important concept to understand when engaging in estate planning is “probate versus non-probate transfers.” Any property that passes through or under a will is called a probate transfer. Suppose I die, and my will states (among other things), “I give, devise, and bequeath all of my property, both real and personal, to my spouse.” On the date that I died, I owned a house in my name only. My will gets submitted to the court (part of the probate process), and the house eventually ends up in my wife’s name due to my wishes as laid out in my will. The actual probate process contains many more steps than that, but for the purposes of this article, that explanation will suffice.
But further suppose that I have a life insurance policy with my son as the named beneficiary. Upon my death, my wife seeks to collect the life insurance policy for herself. My wife reasons, “Joel’s will said that I take everything.” But the life insurance policy is a non-probate transfer. It does not pass through or under my will. So even though my will says that I leave everything to my spouse, my spouse is not entitled to the proceeds of the life insurance policy; my son, as the named beneficiary, is.
The situation above surprises a lot of people. Most people think, “The will says my spouse gets everything, so he/she really should get everything.” But the will has absolutely no power, control, or authority over any non-probate transfer…and there are a lot of different types of non-probate transfers. Joint checking accounts, for example (so long as they have rights of survivorship), pass instantaneously upon the person dying; the will is not involved at all. So if I had a joint checking account with my son, and my wife’s name wasn’t on it, she wouldn’t get the funds in that checking account, just like she wouldn’t get the funds from the life insurance policy. Most people naturally think, “If there is a contradiction in the estate plan—say, between a will and a life insurance beneficiary—then the will controls.” But that’s just not how it works.
Don’t leave it to chance
There’s simply no reason to leave these sorts of situations to chance. You might think you have a decent understanding of the law, but I do estate planning for a living. It’s my job. I have almost certainly thought of things that you haven’t thought of. Use me to ensure that your last wishes actually happen.