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Even Without a Will, There’s a Way: What Happens To Your Money When You Die?

Just like the old saying goes, “you can’t take it with you.” But this begs an important question: what happens to your money after you’re gone? After all, after you’ve spent years saving and earning, it’s reasonable to want some guarantees regarding where your money ends up after your death. This is why estate planning is so important: it is the only sure way to control where your money goes. Without it, there is a good chance that your money could end up inaccessible, in many cases taken by the state rather than going to your family and other loved ones.

The following sums up what happens to your money and other assets if you do not have a will or other estate documents in place.

What Happens To The Money in My Bank Account(s)?

One of the reasons that people don’t write out a will or other estate planning documents is because they don’t think you need them unless you are rich. In some people’s eyes, those with a big family and a lot of money need to plan in advance, since otherwise, it should be “obvious” where their money would go. But what might seem obvious to you might not translate to the letter of the law.

For instance, if you’re married, you might assume that after you die, your spouse will automatically receive the money in your bank accounts. This is correct if your husband or wife is a joint account holder or is listed as the beneficiary. However, if your spouse’s name is NOT on your accounts or listed as the “Payable Upon Death” beneficiary, your bank accounts will be frozen and entered into probate. This will result in a judge having to decide where your money goes based on state laws. In most cases, a spouse will still likely win the case, but the probate process can take months or even years to complete, during which time they will not have access to these much-needed funds

What About My 401(k) Account and Life Insurance Policy?

Unlike most bank accounts, a 401(k) plan requires you to designate a beneficiary when you enroll. This means that your beneficiary generally won’t have to wait until probate is completed to receive the account balance. However, they will owe income tax (and possibly estate taxes) on the money, so keep that in mind. Additionally, you will need to keep your beneficiary designations up to date: there have been many cases where ex-spouses inherited large 401(k) balances or life insurance payouts because beneficiaries were not current. This can lead to conflict between the current beneficiary and the former spouse.

As for a life insurance policy, when the beneficiary receives the death benefit, this money is not counted as taxable income, and the beneficiary does not have to pay taxes on it. However, if the stated beneficiary is also deceased, the insurance proceeds become part of probate and could be taxable (at least in part) to the recipients. This is yet another reason to make sure you regularly update your beneficiaries, along with establishing a contingent beneficiary when possible.

What Happens to My Possessions?

Regardless of how much money you have to your name, you probably have something of value to leave behind when you die, whether it’s clothes and furniture or antiques and family heirlooms. By default, if you’re married or have children, your possession will go to them. However, without a will in place, it will be up to them to decide how your possessions will be divided up. This can be a problem if you wanted something to go to a specific person, but another member of the family disagrees.

The Importance of Planning Ahead

Whether you have an end-of-life plan ready or not, the fact is that someone will decide what happens to your money and possessions after you die. But by not having a plan, you leave so much up to random chance. Even when your intentions seem like they would be obvious, without a written document clearly laying your desires, it is easy to end up in a situation where your assets end up in the hands of the courts rather than the people who mean most to you. So take some time to create an estate plan: you worked hard to make your money, so be sure that ends up in the right place when you’re gone.

About the author

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Founder/Attorney, CCSK Law
I create customized solutions for families to address their planning needs.
I provide plans clients understand. Also, they make sure they know when to use them, and do so affordably. I love the opportunity to break through the legal jargon to clarify issues. We find success when we work through a person’s situation and put the law to work for them.

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