Wills, Trusts, and Beneficiary Designations: Questions to Ask

Many people have a will in a drawer and think the job is done. But a will is just one part of the plan. The names on your bank and retirement accounts matter too. A trust helps some families, and it may not be worth it for others.

This guide gives you the questions to ask, one topic at a time. This guide is general information, not legal advice. Laws differ by state, so a lawyer in your state can tell you how the rules apply to you.

Key takeaways

• A will says who should get your property after your death, but it does not control every account you own.
• The name on a beneficiary form for a retirement account, life insurance, or a payable-on-death account takes the place of what your will says for that account.
• A trust controls only the money and property you put into it.
• Probate is the court process that settles an estate, and the steps vary by state.
• Review your will and your beneficiary forms after big life changes, and keep your papers where a trusted person can find them.

What Does a Will Cover — and What Does It Not Cover?

A will is a written paper that states how and to whom you wish your property to go after your death. Ask these questions about yours:

If a person dies with no will, the law calls that dying intestate. The property is then split by a formula set by state law, which may not match your wishes at all. That is the main reason to make a will, even if your estate is small.

A will does not cover all you own, though. When one joint owner dies, joint property usually goes to the joint owner who is still living. Accounts with a named beneficiary are the big case, covered in full below. Before you meet with a lawyer, gather your facts first with our guide to preparing a will: information to gather before meeting an attorney.

• Does my will name who should get my home, my savings, and the things I own?
• Does my will name a person to carry out my wishes? This person is often called an executor.
• If young children are in my care, does my will name who should care for them?
• Is my will signed and witnessed in the way my state requires?

What Does a Trust Do — and What Does It Not Do?

A trust is a legal paper that sets up a way to hold money and property. One kind you will hear about a lot is a revocable living trust. Ask: Who fills each role in this trust? What property will I put into it? Who will manage it if I get sick? What does it not do?

The roles are these. The person who makes the trust is called the grantor. The person who makes choices about what is in the trust is called the trustee. The people who get money or property from the trust are called the beneficiaries. In many living trusts, you are your own trustee while you are well, and you name a backup, called a successor trustee, who can act only if you can no longer do the job. A trustee is a fiduciary, which means the trustee must act for the good of the people the trust is meant to help.

One reason people set up a living trust is to avoid probate after death. A trust can also give a trusted person the power to make money choices for you if you get hurt or sick. While you are well, you can still use what you put in the trust, such as living in your house.

Now for the limits:

• A living trust does not work until you put your money or property into it. The trustee has power only over what is in the trust, and no power over property that is not in the trust.
• Property you do not move into the trust is still handled by your will, or by state law if you have no will. Many people with a trust also keep a short will to catch what was left out.
• A living trust does not shield your property from people you owe money to, or from care costs. It does not, on its own, make you eligible for Medicaid. If a sales pitch says a trust does those things, ask hard questions and get advice from a lawyer you choose.

Why Do Beneficiary Forms Matter So Much?

A beneficiary is the person or group you choose to get an account after you die. You name this person on a form with the bank, the plan, or the insurance firm. For each account you own, ask: Who is named right now? Is there a backup name? Does the name still match my wishes?

Here is the key fact. An asset that has a beneficiary form is not controlled by a will. The form takes the place of the will for that asset. The Internal Revenue Service gives these examples: a retirement account, a life insurance policy, and a payable-on-death bank account. Those assets do not have to go through probate. They go to the person named on the form.

This rule can cause real pain when a form is old. A will that you updated last year does not change a form you signed years ago. If the form names a former spouse, that is who the plan will pay.

The first names in line are the primary beneficiaries, and they inherit first. If they die before you, the assets go to the backup names you listed, called secondary or contingent beneficiaries. If all of the names die before you, the money may pass to your estate and become probate property, split under state probate law or your will. That is why a backup name is worth adding.

For retirement plans, you must name your beneficiary in the way the plan sets up. Some plans require a set beneficiary, such as a spouse, and many plans require your spouse to be the main beneficiary unless your spouse gives written consent to a different name. Ask your plan how its rules work.

What Is Probate?

Probate is the court process that settles what a person owned and owed after death. Ask: Will my estate need probate in my state? Who will handle the steps? Which of my assets pass outside of probate?

The steps vary by state law, but the broad shape is much the same. First, someone asks the court to open the case. If there is a will, the court names the executor from the will. If there is no will, the court names an administrator. That person gathers the property, takes charge of it, and is charged with paying the debts of the person who died.

Next, that person files a list of the estate's property and debts with the court. Creditors get notice and a set time to make claims. Taxes and settling costs are paid too. When all debts, costs, and taxes have been paid, the person in charge files a final report that shows what came in, what was paid, and what is left. When the court approves it, the court orders the property to be given out, and the case can close.

The Consumer Financial Protection Bureau notes that probate is a public process, and it can be costly and can take a long time. That is why some people plan to keep some property out of probate, with beneficiary forms or a trust. Probate is not a sign of wrongdoing. It is the court's way of making sure debts are paid and property goes to the right people.

When Should You Update Your Papers?

A will stays in effect until you change it or revoke it. You can change it as often as you wish. Review your papers when you marry or a marriage ends, when your spouse dies, when a child joins your family, when a person you named dies, when you buy or sell a home, when you move to a new state, or when tax laws change in a way that affects your plan.

The same check applies to your beneficiary forms. The Internal Revenue Service says a plan member should review, and may need to change, their beneficiaries when their spouse dies. The steps are plain: ask your employer or plan manager for the change forms, fill them out as the forms direct, and send the signed forms back.

Use care in how you change a will. Notes you write by hand on your will may not work as a legal change. A will is changed by writing a new will, or by adding a formal written change called a codicil. Review yours from time to time even when life is calm, since family facts, property, and laws all change.

What Should You Ask an Attorney About Cost and Scope?

Many people put off this talk because they fear the cost. You have a right to ask clear questions before you hire a lawyer. Ask:

Write the answers down. If cost is a worry, say so at the start. The lawyer can tell you what a basic plan covers and what adds to the cost.

• What work will you do for me, and what work is not part of the job?
• Will you draft a will only, or a will plus other papers, such as a trust or a power of attorney?
• How do you charge? Is it one set fee, or do you charge by the hour?
• What facts about my case change the cost, and who will do the work?
• How long will the work take, and what do you need from me?
• If my facts are simple, is a trust worth the extra work for me, or is a will enough?

Who Covers What

• Medicare: Medicare does not pay for estate-planning legal work. It does not pay to draft a will or a trust, and it does not pay for probate or estate administration. Medicare is health coverage, and you pay all costs for services it does not cover.
• Medicaid: Medicaid does not pay for that legal work either. Medicaid helps with health care costs for people who qualify. It is not a source of funds for drafting a will or trust, or for settling an estate.
• Private pay: these costs are private pay. You pay a lawyer yourself to draft or review your papers. Probate and estate costs are paid out of the estate before what is left goes to the people named. That is why the cost questions in this guide matter: ask what the work covers and how the lawyer charges before you hire one.

Sample Situation

James and Ana are in their late sixties and live in their own home. This is just an example, but it shows how the pieces can clash. Years ago, James set up a retirement account at an old job. The form on that account still names his first wife, who died two years ago. His will, which he updated last year, leaves all he owns to Ana. He thought the new will fixed the old form. It did not.

Ana asked the key question: who is named on each account right now? They called the plan, learned the form still named his first wife with no backup name, and filed the plan's change forms as the plan directed. They also made a list of their accounts and the names on each one, and put the list with their will. Their next step is a short visit with a local lawyer, to ask if a trust adds anything for them, what the work covers, and how the lawyer charges.

Keep Your Papers Where Family Can Find Them

Good papers do no good if no one can find them. Keep your will, trust papers, account lists, and key contacts in one safe place that a trusted person can reach in a crisis. Federal guides for older adults urge you to sort your key papers, store them where they are easy to reach, let trusted loved ones know where they are, and keep the facts current when things change.

Our guide to creating an important document organizer shows a simple way to sort these papers so family can find them fast. One part of the set is easy to miss: your online life. Our guide to planning access to digital accounts and online records covers how to list your online accounts, state who may get into them, and keep that list safe.

A Calm Next Step

You do not need to fix your whole plan in one day. Pick one small step this week. Pull one account form and check the name on it. Or make a list of your accounts and where your papers are kept. Or book a first talk with a local lawyer and bring your questions.

Legal papers are one part of aging at home with less stress. Money choices tie in too, such as how care at home gets paid for if you need help later. A good next step is to read our guide to paying for care, which lays out who pays for what, in plain words.

Sources

• https://www.consumerfinance.gov/ask-cfpb/what-is-a-revocable-living-trust-en-1775/
• https://www.irs.gov/irm/part5/irm_05-005-002
• https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-beneficiary
• https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-death-of-spouse
• https://www.medicare.gov/coverage/long-term-care
• https://www.medicaid.gov/medicaid/index.html
• https://consumer.sd.gov/fastfacts/wills.aspx
• https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins-83