Who hasn’t had their lives upended by COVID-19? Rising infection rates have prompted many people to write their wills. But some fear the potential expense and complexity of creating a will. They rely on the “poor man’s will” to pass assets to their families after death. While it may seem logical and foolproof, this method can cause more problems than you may think.
The Poor Man’s Will, Explained
As you may guess, the poor man’s will isn’t a will at all. It uses beneficiary designations to bypass probate and get money and assets to one’s heirs. As Nolo explains, this is also called a “Totten trust” when it’s done with bank accounts. All the account owner does is complete paperwork to name a pay-on-death beneficiary. The beneficiary can’t access the funds while the account owner is alive but can collect them after death.
The Totten trust concept applies to bank accounts. Finance expert Liz Weston also mentions people using transfer-on-death and beneficiary designations. These usually apply to investment accounts, insurance policies, and property deeds in some states. Some people also use joint ownership in the same way. They add their spouses or children as joint owners on real estate, financial accounts, and other assets. If one owner passes and the other is alive, so the reasoning goes, the asset does not have to go through probate.
Risk 1: Scams and Financial Abuse
So, the poor man’s will sounds like a cheaper and easier alternative. But is it the wisest way to plan your estate? Probably not, says Weston. Surviving account and property owners can change beneficiaries after the original owners’ deaths. Unfortunately, that’s an open door for scammers.
The CDC lists several forms of elder abuse, including fraud – the improper or illegal use of an elder person’s assets for one’s personal benefit. And persuading a vulnerable elder to change beneficiaries certainly fits that definition. Unscrupulous relatives, friends, love interests, and caregivers are frequent culprits.
Risk 2: Can’t Pay the Bills
Using POD, beneficiary designations, and joint ownership can create another problem: difficulty paying creditors and funeral expenses. If property, financial accounts, and assets aren’t in a will, they won’t go through the probate process. And that can create headaches for an estate executor trying to track down these assets.
Risk 3: Community Property Laws
One final wrinkle can happen in states with community property laws. In other words, any property accumulated during a couple’s marriage belongs equally to both spouses. If one spouse dies, the remaining half of the couple’s property goes to the surviving spouse. That spouse is also on the hook for debts incurred by the deceased during their marriage. Some community property states recognize the right of survivorship. Titles or deeds will pass to surviving spouses without going through probate at all.
Relying on POD and beneficiary designations can throw other monkey wrenches into settling an estate. Say you’re married and live in a community property state but your sibling is a primary beneficiary on an investment account. You probably broke state laws since your spouse should be the first beneficiary. They can’t prosecute you in the hereafter, but you've left a mess for your spouse, your sibling, and the probate court to clean up.
Saving Time, Money, and Hassle
Thankfully, wills aren’t as expensive to create as they used to be. There are plenty of software programs and online tools that can help. The Balance’s Jen Smith offers several suggestions. There are free options like doyourownwill.com and robust services such as TotalLegal. There’s another side benefit – writing a will forces you to take stock of your financial picture. Rather than relying on the poor man’s will, an organized approach to estate planning best benefits you and the loved ones you leave behind.
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