A common misconception with estate planning is that you have to leave your estate to someone in your family when you pass away. However, in the United States, with the exception of a spouse, you are free to leave your assets to anyone you wish, including a non-marital partner, friends, a charity, or even a pet.
When a person dies without a Will and has failed to designate a beneficiary on his or her bank accounts, retirement, or other financial assets, their assets will pass to certain blood-relatives provided by the applicable statute for the State in which they die. In addition, your assets can be seized upon by your creditors should they all end up in probate – a very real problem these days when individuals die with a mortgage, credit card debt, or large medical bills that go unpaid by insurance.
If you want to leave your assets to someone other than your family and avoid your local statute in your State controlling who inherits your estate, you can actively take the following steps to avoid this outcome.
Create a proper Will, trust, or name specific beneficiaries on your financial accounts.
Depending on your long-term goals, you can entirely avoid probate by designating specific individuals (non-family members) as your beneficiaries on your bank accounts or other financial assets. This is called designating a payable on death (POD) or a transfer on death (TOD) beneficiary. If you are married, you may not be able to remove your spouse as the primary beneficiary on your retirement accounts; however, for your other non-retirement accounts, if titled in your sole name, you can consider naming someone other than a spouse as the POD or TOD beneficiary.
If you prefer to use a Will, you will want to avoid naming any POD or TOD beneficiary on your accounts and, instead, allow all your assets to pass through your Will to the beneficiaries you choose to receive them. Using a Will, however, means probate, which involves additional costs, paperwork burdens, and delays – and sometimes probate contests. If you want to avoid probate, you should consider a Trust plan and then designating your Trust as the POD or TOD beneficiary, so that all your assets can be transferred by your successor
trustee to your named beneficiaries in your Trust (which can even include providing for a beloved pet using a Pet Trust), and allow you to avoid probate.
Give intended gifts to friends while you’re still alive.
Subject to the federal gift tax limitations in effect in a year when you make a gift (i.e., currently $15,000), you might also consider giving gifts during your lifetime to persons other than your spouse or family members who you wish to benefit from your estate. This is often used to give physical property items rather than cash, and it ensures they get into the right hands. Lifetime gifting also has the advantage of reducing your taxable estate.
Disinherit troublesome family members.
If you think certain family members may try to fight your wishes of who receives your assets, you can disinherit them with the following estate planning tools:
1. Designate beneficiaries now and Include No-Contest Clausel.
By naming who you’d like to receive your property, and including a no-contest clause in your Will or Trust, you help avoid conflicts among family members over who will inherit your assets.
2. Document the disinherited family members with a supplementary letter.
Including a letter supplementing your Will naming any specific individuals whom you don’t want to inherit your assets can help a probate court better understand your wishes.
If you choose to go this route to ensure certain family members don’t receive your assets, be descriptive and document specific reasons why you don’t want those individuals to inherit anything from your estate. These types of letters can be tricky to format and execute properly, so be sure to consult an attorney for assistance.
3. Have your spouse waive their claim.
Traditionally, you can’t legally disinherit your spouse from receiving your assets upon your passing. However, if you and your spouse sign a Post-nuptial Agreement (called a Post-Marital Agreement) in Virginia, you can both agree to legally waive your respective right to what’s called “the elective share” or “augmented estate” at the time of your spouse’s death. This is often a provision included in separation agreements as well when spouses separate but have not yet obtained a divorce due to the statutory waiting periods in Virginia for legal separation.
For assistance with mapping out a plan to ensure your assets go to the people (or pets) you want to receive them, you can schedule a free consultation with the Law Office of Patricia E. Tichenor to what approach and documents work best for you.
