Q. My wife and I hold title to her home as joint tenants, and most of our cash assets are in the
form of two large IRA accounts and one big annuity. We have basic wills which leave everything
to the other and then on to our children. Our son suggested that our wills may not control what
happens to our assets when one of us dies. Should we be concerned?
A. Perhaps, in the sense that your wills will not control what happens to your assets when one of
you dies. Rather, the form of title will control as to your home, and the beneficiary designations
on your IRA’s and annuity will control what happens to those assets. Here is the way it works:
Your Home: Since you and your wife hold title to your home in joint tenancy, when one of you
dies the other will automatically become the owner by right of survivorship. The right of
survivorship is the primary feature of joint tenancy. In essence, the form of title overrides your
wills. It is only when the survivor later dies that his or her will may control who ultimately gets
the home. While many couples in California do hold their home in joint tenancy, it is often not
the best form of co-ownership. One principal reason: it does not optimize the tax benefits that go
along with holding title as ”community property” if the home has appreciated significantly in
value since the time of purchase.
Your IRA Accounts: Each of your IRA accounts will, upon the death of the IRA owner, go to
the primary beneficiary named in the account agreement signed when you created your IRAs.
Presumably, the primary beneficiary for each of you is the other spouse and, if deceased, your
children. However, the pattern of distribution very much depends upon who you designated as
primary and contingent beneficiaries when you created your accounts. It is always wise to review
these designations and retain in your permanent file a copy of the documentation you signed
when you created your accounts. As a lawyer, I have been involved in at least one case where the
IRA custodian lost the paperwork on a very large IRA account, almost costing the designated
beneficiary a six-figure tax bill because of the resulting delay in distribution. The IRS has strict
rules about handling inherited IRA accounts, and these must be observed on a timely basis to
avoid unnecessary tax.
Your Annuity: the person or persons to receive your annuity would, just like the IRA, depend
upon who was named as the beneficiaries on the annuity contract, itself. The same would be true
if you owned any other insurance products or policies. Where you have designated named
individuals to be primary or contingent beneficiaries, the contract or policy controls and not your
will.
In view of the above, whenever clients come in to see us for estate planning, we always urge a
review of all beneficiary designations associated with IRA and other retirement accounts, as well
as annuities and other insurance products. Where appropriate, the beneficiary designations can
then be modified, so that the plan design accomplishes the clients’ goals and everything works
together. In many cases, the clients choose to name their Living Trust as the contingent
beneficiary of these contracts and policies, so that the plan of distribution integrates with the plan created in their trust.