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Your Bank > Education and Advice > CNB University

Just Having a Will is Not Enough

James P. Terwilliger
James P. Terwilliger, PhD, CFP® is Senior Vice President - Group Manager, Financial Planning Strategies and can be reached at JTerwilliger@CNBank.com or (585) 419-0670 x50630.

Folks who have a will in place feel reasonably secure about their wishes being honored in the event of their passing.

For some, the feeling is justified. For others, having a will provides a false sense of security.

Why? There are a number of reasons.

Age of Will

From a technical design perspective, older wills may be obsolete, not reflecting ongoing changes in federal estate tax laws.

Ten years ago, the federal exemption was less than $1 million. Over the years, it rose to $5 million in 2011-2012. It will revert back to $1 million in 2013 unless Congress acts. To add confusion to the mix, Congress actually abolished the federal estate tax in 2010.

Many wills established or updated over this time period have provisions that may be "hard-wired" to the federal exemption or some combination of the federal exemption and the NYS exemption, which has remained steady at $1 million. Such provisions can yield disastrous consequences such as allocating all assets to trusts and none directly to heirs.

Some attorneys employ more flexible designs, using disclaimer techniques to accommodate changing exemptions. That helps. But wills signed more than 10 years ago are likely to be technically obsolete.

Then there is the issue of "life happens". Things change. Everyone ages, siblings and parents pass on, family members become married or divorced, loved ones become incapacitated, and charitable interests evolve. You name it.

I can't tell you how many clients become close to horrified when we sit down to chart out the flow of wills 10, 15, or more years old. For some, it's "That's not what I wanted". For others, it's "That was fine then, but it's not what I want now".

Regardless, making sure wills are reviewed and updated on a regular basis is crucial. We typically suggest no longer than 5-year intervals. It is one of the most important actions we can take - ensuring that our lifetime accumulation of wealth is directed to our families, friends, and institutions in accordance with our wishes.

Do not let procrastination interfere with this important personal responsibility.

Beneficiary Designations

Many commonly-held assets pass only by beneficiary designation, including employer retirement plans, IRAs, Roth IRAs, life insurance death benefits, and non-IRA-related deferred annuities.

Beneficiary designations trump the will.

Other assets trumping the will are those that pass by operation of law. A common example is jointly owned property with the right of survivorship.

Given the above, you might wonder why having a will is important, particularly when a lot of estates consistent largely of the above two types of assets?

The will creates the overall design of the estate plan, directing the strategy for naming beneficiaries and directing decisions regarding jointly-owned vs. individually-owned property. The will often creates trusts that can be used to minimize estate taxes or to create managed pools of assets for family members and/or charities. The will names the estate executor, trustee(s) for trusts created by the will, as well as guardians for minor children.

Having a will is crucial. But the best-designed will cannot correct or moderate beneficiary designations that are out of date or just plain wrong.

The problem we all face is that beneficiary designations evolve over time. We are asked to name beneficiaries over a span of decades as we purchase life insurance, sign up for retirement plans or IRAs, and/or purchase annuities. Over that time span, our lives have changed. We are inconsistent naming contingent beneficiaries. Because of this, it is common to find ex-spouses who are still named, newer children/grandchildren who are not named at all and/or a myriad of other inconsistencies that work against our wishes and our wills.

Suggested "to-do" List

  • Review and update all your beneficiary designations, primary and contingent, to make sure they carry out what you intend and are consistent with your will. Contact your attorney for guidance.
  • If your will is more than 5 years old, meet with your attorney to review the design, consider an update, and design your beneficiary designation strategy. At the same time, include power of attorney, living will, and health care proxy documents in the review process.

Put this at the top, not bottom, of your priority list. And include a trusted financial planner in the process to ensure that your estate plan is consistent with your overall financial plan. 

This material is provided for general information purposes only and is not a recommendation or solicitation to buy or sell any particular security, product or service. Past performance is not indicative of future investment results. Any investment involves potential risk, including potential loss of capital. Before making any investment decision, please consult your legal, tax and financial advisors. Non-deposit investment products are not bank deposits and are not insured or guaranteed by Canandaigua National Bank & Trust, or any federal or state government or agency and are subject to investment risks, including possible loss of principal amount invested.

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