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What Is a Will Substitute?

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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.

What is a Will Substitute?

Not all property can be disposed of by Will or by intestate succession. The items listed below are known as Will Substitutes because these items pass according to the terms of the agreement or ownership, not the terms of your Will.

  • Life insurance proceeds will be paid to the named beneficiary.
  • Pensions funds, retirement accounts, and Individual Retirement Accounts (IRAs) will be payable to the designated beneficiary. If no beneficiary is designated, proceeds will be payable to your estate.
  • Payable on Death designations will be payable to the designated beneficiary.
  • Property owned jointly with right of survivorship will pass to the surviving owner.
  • Deeds of Title will transfer according to the deed.
  • Living Trust items will pass according to the terms of the Trust document.

Methods of transfer

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, the property should be distributed equally among the surviving owners upon the owner’s death. 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, 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.