Welcome to the Guide on What You Should Not Include in Your Will
This article delves into the types of assets and liabilities that should not be included in a will. It also provides readers with a comprehensive understanding of what happens to debt after death. Understanding these nuances is crucial for ensuring that your wishes are accurately carried out and minimizing potential complications for your heirs.
1. Debt
One of the most critical things you cannot leave to someone in a will is debt. Typically, when a person dies, the estate is responsible for paying off any remaining debts. If the estate does not have enough money to cover these debts, they are generally forgiven.
For example, if an individual passes away with outstanding debts, the estate must pay them off. However, if the estate is insolvent (i.e., it does not have enough assets to cover the debts), the debts are typically waived. This means that creditors cannot chase the heirs for money. This applies to most debts, such as credit card debts, personal loans, and medical bills.
On the other hand, if you are a cosigner on a loan, you are personally responsible for paying it off if the primary borrower dies. This is a significant exception that can be overlooked. It is essential to inform any co-signers about the death and the need to address any remaining financial obligations.
2. Federal Income Tax
Another example of a type of debt that cannot be left to estate beneficiaries is unpaid federal income tax. The Internal Revenue Service (IRS) can hold a deceased individual’s estate responsible for unpaid taxes owed from the year prior to the death. However, the IRS can demand payment of any unpaid federal income tax for a period of three years prior to the individual's death.
An estate may have to pay federal income tax up to three years back, but not beyond that. This rule can be complex, and it is important to consult with a tax professional or attorney to navigate these requirements correctly. In some cases, the estate may be able to negotiate with the IRS to arrive at a fair payment plan.
2. Uncontrollable Assets
While most assets can be passed on, there are certain exceptions involving legal ownership or special status that might make it difficult or impossible to transfer them through a will. For instance, certain deeds, contractual agreements, and legal rights can restrict what the estate owner can do.
Deeds and Contractual Agreements
When drafting a will, it is crucial to consider any deeds or contractual agreements that might limit what can be left in the will. For example, if you are a co-owner of real estate, the deed might dictate that the property can only be inherited according to specific instructions. Similarly, certain life insurance policies, retirement accounts, and other financial instruments may have beneficiary clauses that override the will.
It is also important to note that some agreements, such as leases or service agreements, may have clauses that prevent transferring rights to the estate after the owner's death. These restrictions can complicate the process of distributing your estate and may require you to seek legal advice to navigate these situations.
3. Your Presence
Lastly, it is worth mentioning that your presence itself in a will is not something that can be passed on. Your estate and the assets you leave to your heirs do not carry any personal characteristics or emotional connections. However, a will is a crucial legal document that outlines your final wishes and can significantly influence how your estate is distributed.
Ensure that your will is comprehensive and covers all the necessary details. Consult with an attorney to ensure that the document is properly drafted and legally binding. This can help prevent any misunderstandings or conflicts among your heirs and ensure that your wishes are fulfilled.
Conclusion
In summary, it is essential to be aware of the limitations and exceptions regarding what you can and cannot leave in your will. Debt and uncontrollable assets can pose significant challenges, while the living person’s presence cannot be included. Understanding these nuances will help you create a clear and effective will that reflects your intentions and protects your heirs.
Practical Tips
To ensure that your will is structurally sound and complies with legal requirements, consider the following tips:
Consult with a legal expert to draft or review your will. Update your will regularly to reflect any changes in your life or property. Clearly specify the beneficiaries of your assets and any specific instructions. Consider additional legal documents such as trusts to manage complex assets.