Many people mistakenly believe that having a will requires their heirs to go through the expense of probate and therefore do not make a will hoping to avoid probate and estate taxes. Some individuals also believe they can avoid probate and estate taxes by using will substitutes. Common will substitutes include the following:

  • Gift of assets, property or cash;
  • IRA or other pension plans with a designated beneficiary;
  • Life insurance;
  • Joint checking/savings;
  • Jointly owned house;
  • Property assignments.

Using will substitutes may allow you to reduce the size of your probate estate. However, these substitutes will not reduce the size of your taxable estate. For example, if you own your house jointly with right of survivor to your cousin, your cousin will take control of the house upon your death but will not necessarily avoid probate and all estate taxes on your house.

In fact, assets controlled by other will substitutes may be frozen by the state to ensure payment of state, death, or other taxes. Moreover, property or bank accounts owned jointly with the right of survivorship are wholly owned by the survivor upon your death. Once you die, the survivor has the absolute right to do what he/she wants with the property. Regardless of any “understanding” you had prior to your death, your cousin does not have to sell your jointly owned house and give your portion of the proceeds to your Aunt as you requested.

There are no real substitutes for a will drafted as the cornerstone of an estate plan. A will created by an experienced wills and trusts attorney will help you make sure that you, and not the state, controls the distribution of your assets and the care and maintenance of those you love upon your death.