Updated 04/01/2013 11:47 AM
Money Matters: A will is not always the final word
YNN continues its look at wills by examining what they don't cover and reviews a list of other legal documents you may want to have in place to protect yourself and your family. Tara Lynn Wagner filed the following report.
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So you've written your will, which puts you one step ahead of most Americans in terms of protecting your family after you're gone. However, even this vital document has limitations. For one thing, your will may be your last wishes but it's not always the final word.
"The will does not cover assets that have a beneficiary," says Michael Connors, a founding partner of Connors and Sullivan. "So if somebody has a life insurance policy with your sister as beneficiary and your will says 'I leave everything to my children,' well, that life insurance policy goes to your sister."
It also only applies to assets listed solely in your name. Elder Law attorney Ann-Margaret Carrozza says aging parents often add one of their children to a bank account to help keep up with the bills. Even if their will directs all assets get split evenly among their three children, that rule would not apply to this account since one child is listed as a co-owner.
"Immediately upon my death, she is free to go to the bank with a death certificate and she will leave with a check," Carrozza says. "Sometimes, that can create hard feelings with the other kids.
A will also only takes effect after you die but circumstances may arise where you need someone to make decisions on your behalf while you are still alive.
"People sometimes mistakenly think 'I have a will, I named an executor and somehow he or she is empowered to step into my shoes in the event that I am incapacitated,'" Carrozza says. "That is not the case."
Which is why Carrozza encourages clients to create a power of attorney, which gives control of your finances to one or even two people should you be physically or mentally incapacitated. However, Connors warns to choose carefully.
"If you give it to the wrong person, they can wipe you out, they can steal you blind," he says. "But if you have family members you can trust, I can strongly urge you do a power of attorney."
He also suggests signing a health care proxy, which appoints someone to make medical decisions on your behalf if you can no longer speak for yourself. The three documents together offer the most complete protection but while there is no one-size-fits-all legal answer, attorneys say one rule does apply across the board.
"Everybody should have a will because you never know what's going to happen in this world," Connors says.