Will Substitute

A Welcome Addition to an Estate Plan

When it comes to estate planning, many automatically assume a will dictates how all assets should be distributed at death. However, this is not always the case. At death, assets will be transferred by one of two ways: Probate or Will Substitute. Probate is the process of determining the validity of the will; once this process is complete, any assets controlled by the will are distributed as directed. However, some assets are not subject to probate and supersede the terms of a will. These assets are titled in some form of will substitute and go to specific beneficiaries. The distribution of will substitutes cannot be controlled by a will.

Will substitutes transfer property by two methods. The first method is the principle of right of survivorship, also referred to as "operation of law," which includes property titled in either joint tenancy with right of survivorship or tenancy by the entirety. When property is titled in either of these ways, upon the owner's death, the property should be distributed equally among the surviving owners. This transfer happens regardless of the terms of the will.

Assets that include beneficiary designations are the second form of will substitute. Life Insurance policies, Individual Retirement Accounts (IRAs), pension plans and living trusts are common examples of assets driven by contractual beneficiary designations. It is important to note if a beneficiary is not designated, or if an estate is named as the beneficiary, the asset loses its will substitute form and must pass through probate. Will substitutes can also be added to non-contractual assets by titling them Payable on Death (POD) or Transfer on Death (TOD). Such provisions state that at death, the assets avoid probate, and automatically pass to the beneficiary. The POD provision is commonly used with deposit accounts and cash equivalents, whereas the TOD provision is usually associated with securities.

Will substitutes provide for a probate-free transfer of assets, and as the probate process can be quite lengthy, may allow beneficiaries quick access to funds needed to pay final expenses and administrative costs. Although will substitutes, when used correctly, can be a useful estate planning tool, there may be other property (titled Tenancy in Common, or Individual ownership with no beneficiary designations, e.g.) that will need to pass through probate. Therefore, it is important to establish a will, and perform a periodic review of the will, along with any will substitute arrangements. Always keep in mind changes to will substitutes must be made individually on each asset. For more information about trust services or estate planning, please contact your local branch office and ask to speak to a trust representative.

Trust Services offered through Members Trust Company, a federal thrift regulated by the Office of the Comptroller of the Currency. Trust products are not credit union deposits, are not insured by the NCUA or any other federal government agency, are not obligations of or guaranteed by the Credit Union, Members Trust Company or any affiliated entity, and involve investment risks, including the possible loss of principal. The material above is for educational purposes only and is not intended to provide legal or tax advice regarding your situation. For legal or tax advice, please consult your attorney and/or tax professional.