Think you're covered? Not so fast
August 1, 2019
I don’t know how many times I have heard someone say “I don’t need to do any estate planning. I have a will and it does what I want”.
Oh, I wish it was that easy.
A will is a good and important thing to have, but it doesn’t do nearly what people think it does. For one thing, the will only controls assets that go through probate. So anything that does not go through probate, isn’t affected by the will.
What doesn’t go through probate? For one thing, assets that have a designated beneficiary (your bank, brokerage, or insurance company might call it a TOD or POD, for transfer on death or pay on death). Regardless of what you say in the will, if you have someone designated to receive that asset on the account, that is who it goes to. Alaska now has a law which allows you to do the same thing on real estate, so you can now designate who gets it when you die directly on the title.
Also assets that have a joint owner with right of survivorship, don’t go through probate. And of course if the asset in question is not actually titled to you -- for instance it is titled to your spouse, some other relative, or a living trust -- it doesn’t go through probate and so again, the will does not affect that asset.
Household goods – a term the Alaska courts use very broadly – are considered joint between husband and wife, unless you can prove otherwise. Let’s say you want to leave your jewelry to your daughter from your first marriage, instead of to your husband. You write that into your will. If your husband claims those were joint assets, it will be up to your daughter to prove in court which specific items of jewelry were owned by you before the marriage.
But even if an asset goes through probate, the will does not completely control what happens. Creditors have to be paid, assuming there is enough money in the estate, whether you want them to be paid or not. So do administrative expenses, including payment to the executor.
And aside from that, there are various laws which override the will in probate.
One group of statutes that often catches people unawares, are the statutory allowances. These are actually three different laws, directing amounts to certain family members. Those statutory allowances must be paid regardless of what the wills says. There is a homestead allowance, which goes to the surviving spouse, of $27,000. There is a family allowance of $18,000 for a surviving spouse, or for minor or dependent children. And there is an exempt property allowance of $10,000 which goes to the surviving spouse, but if there is none, to the children of the deceased (including adult children). This means you can’t completely disinherit your ne’er-do-well son, unless you avoid probate.
There are also laws for after-born children (children who are born or adopted after the will is signed) and for what are called pretermitted spouses, which means someone who married the testator after the will was signed. These laws give those children, or that surviving spouse, a share in the estate, on the assumption that the testator would have included them, but just hadn’t gotten around to updating the will. Incidentally you should never rely on these two statutes; they are a mess, and depending on the circumstances that after-born child, or that pretermitted spouse, might get much more, or much less, than you would have intended.
A really big one is the spousal elective share. This allows the surviving spouse to take up to one-third of the estate, if he or she is not getting at least that much under the will. This one is really complicated as well. The judge actually takes all of the assets of both the deceased spouse, and the surviving spouse, to come up with something called the “augmented estate”. Then if, between what the surviving spouse already has, and what he or she is getting under the will, it comes out to less than a third, the surviving spouse gets an additional amount to bring him or her up to that one-third minimum.
A spousal elective share case can get really expensive, because potentially every asset of either spouse has to be appraised. I had one case where the attorney fees, accountants fees, and cost of appraisals ran hundreds of thousands of dollars. And it almost never ends up with a result that is what the deceased would have wanted, because it’s an arbitrary fraction. Why one-third? It was just a compromise number, cooked up by a legislative committee many years ago.
So what’s my point here?
You can have a perfectly good will. It has all the i’s dotted and the t’s crossed, all the technical details are correct, and it says precisely what you want it to say – and it still may not accomplish what you want it to accomplish, because of how the laws work.
Kenneth Kirk is an Anchorage estate planning lawyer. Nothing in this article should be taken as legal advice for a specific situation; for specific advice you should consult a professional who can take all the facts into account.