What a Will Can't Do for You

Mistakes are the portals of discovery. - James Joyce

Mr. Joyce, in his comment above, assumes that you have the luxury to learn from your mistakes and, thus, avoid them in the future. His thought is less profound, however, when it comes to wills, since it is usually too late (for you at least) to learn from mistakes made in preparing your will after you are dead. Because a will is such a highly recommended part of any complete estate plan, it is important to avoid mistakes when crafting yours.

Warning As important as it is, a will normally should not be your one and only estate planning tool. For example, it is wise to arrange for at least some assets to transfer automatically at your death to avoid the costs and delays of going through probate.

Although a will is a critical element in estate planning, there are many limitations that you need to consider. Many people have misconceptions about wills and what they can do. For instance, some people seem to think that making a will can suddenly make them richer. This may sound crazy, but many people assume that just because they have assets and make out a will, all their wishes will automatically be carried out. This just isn't so.

Your will controls the distribution of wealth that is in your estate at the time of your death. If you no longer hold an asset, such as a family heirloom that your wills says will be left to your niece, then that provision is ineffective. You can't give away what you don't own. Also, as the example below illustrates, many typical will provisions lose their punch if the value of the estate declines prior to distribution.

Example Papa Warbucks, a high-ranking Warbucks Corporation shareholder and executive, was an extremely wealthy man that generously provided for those around him. His last will and testament mirrored this generosity and provided amply for those he would leave behind after his death. Unfortunately, much of his wealth was in Warbucks Corporation stock and, when its value plummeted in a significant financial reversal, he dropped dead from shock. After estate administration costs, probate costs, settling a considerable amount of debts, and paying off a shareholder lawsuit against him, the estate was left owing money. Meanwhile, Mrs. Warbucks, Papa's wife, is so upset at losing everything she had counted on for her support in the future, that she quickly turns all of her attention to finding a wealthier widower who can take care of her in the manner to which she had become accustomed. As a result of this turn of events, the following also occurred: Papa's lavish funeral plans were replaced by a pauper's burial. Little Anna, Papa's adopted daughter, became a ward of the state and was sent to an orphanage (again) because nobody could take care of her without support money. Little Anna's mutt dog Sandy was sent on a one-way trip to the dog pound. Punjab, Papa's faithful man-servant, was unable to receive the generous bequest he would have gotten under Papa's will for his life-long service. And so, Punjab was unable to retire, but instead became a maitre d' at a Motel 6. The estate could not implement the continuation of Papa's charitable funding for Miss Asthma's Home for Orphans, forcing the orphanage to close and its occupants to double up in an even worse establishment.

Limitations of Wills

A will's provisions do not supersede transfers that occur automatically to beneficiaries named in a living trust, pay-on-death account, property held jointly with a right of survivorship, life insurance policy, or in retirement accounts like an IRA or 401(k). Therefore, it is important that the beneficiaries under these arrangement are those whom you would want to receive these amounts If that isn't the case, you need to change your named beneficiaries. If you are thinking that your will has the final say on distributing these assets, think again.

Disinheriting your spouse. A will cannot be used to cut a spouse out of a share of your estate. Under state laws, a surviving spouse is entitled to at a portion of the estate and can choose to take an elective share instead of the amount provided for by will. In most states this is one-third or one-half of the value of the estate.

Example If you really do not want your spouse to have any portion of your estate, for whatever reason, there are a number of options. You can enter into a pre-nuptial or post-nuptial agreement whereby the spouse waives his or her statutory right to a share of the estate. You can move your assets into a living trust that provides for distributions outside of probate. Similarly you can hold your wealth that transfers the property to a named beneficiary outside of probate, such as life insurance, retirement plans or "payable on death" financial accounts.

Disinheriting your children or other relatives. You can specifically disinherit relatives, other than your spouse, who would be entitled to receive your assets if you did not have a will. For example, in nearly every state, you can disinherit one (or more) of your children. However, you must affirmatively state that you are disinheriting the individual; otherwise the failure to provide for him or her is more likely to be disregarded as an oversight.

While family conflicts and ill-will between the parent and child are the basis for some disinheritance provisions, there are also a number of other reasons why a parent may opt to disinherit one or more children. Some of these include:

• The child has sufficient independent means and do not need an inheritance from you (for example, your daughter is a highly successful lawyer and is worth more than you are);
• The child has received his or her share of the inheritance during your lifetime (for example, you paid for a top-name college and medical school for your son, or you paid 50 percent of your daughter's house.)
• One child has special needs and will always need sheltered care, while your other children have excellent careers; or
• One child has borne the brunt of caring for you in your old age, allowing you to live in his or her home and foregoing career opportunities to provide care for you.

Although you can disinherit your children and other relatives, you can't prevent them from trying to contest your will, especially if the stakes are high enough. Even if they are not successful, such lawsuits are a huge drain on the estate. Here are some suggestions that make it more likely (but certainly not certain) that the disinheritance provision will be upheld.

• The more clear that you make the grounds for the disinheritance, the more likely the provision will be upheld. For example, "Because my son Mark is independently wealthy as a result of his developing a successful computer program, I have chosen not to provide for him under the terms of my will." is more likely to be upheld than "I am not leaving Mark anything." Similarly, stating "Because I provided for Rebecca during my life and paid for her college and medical school, I am not making provision for her under the terms of my will" is more likely to be upheld.
• Discuss your plans with everyone involved in advance. While the "big surprise" at the will reading makes great soap opera fodder, in real life, a will contest is an ugly and outrageously expensive process in which there are really no winners. If the disinheritance is due to the need to provide more for one child than another, discuss that. Or, if one child is receiving more than another as an "offset" for amounts paid during life or for services provided to you during your life, discuss that.

Caution While it may be possible to specifically disinherit a child, it often is a emotionally charged decision and should not be undertaken lightly. This is particularly true if you are disinheriting the child out of anger at his or her lifestyle or career choices. Regardless of how you feel when you draft the will, decades may elapse before you die. Circumstances can change and what seems right and reasonable when you were age 50 may be the opposite of what you want when you are on your death-bed at age 80. Yes, while you are alive, you can change your mind and amend the will to undo the disinheritance, you might not have that opportunity if you die suddenly or are incapacitated prior to your death.

Other limitations. Although you can put some conditions on the receipt of assets from the will, the law generally doesn't favor a lot of constraints on the transfer of assets. For example, a will may not include a requirement that an heir has to commit an illegal, immoral, or other act against public policy as a condition of receipt (e.g., a scholarship fund to a school, provided it is given only to white males; an inheritance to the child that avenges the parent's murder). Courts will either invalidate the restriction or, worse, the entire section of the will.

A will is only as good as its provisions. So, if it is drafted poorly and gets invalidated, it's useless as an estate planning tool. Similarly, having a will doesn't mean much if you forget to include something important, like a provision authorizing the estate's executor to sell assets as needed and provide a stream of income from the estate to help support the deceased's family.

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