Estate planning encompasses a wide range of topics from familial relationships to complex tax planning, understanding how property is owned and transferred upon death is vital to any estate plan.
For a single person, how property is owned is very simple. It is very easy for people to understand that if they are single and have the deed to their home in their name, they are the owner of the house or after 360 monthly mortgage payments they are the owner. Or, if someone opened a checking account in their name, they are the owner of that checking account.
If a single person dies, what type of property is owned will determine to whom the property is transferred and who the beneficiary of that property is.
Generally, when a person opens an account at a financial institution that person needs to designate a beneficiary(ies). The designated beneficiary is the person who will acquire ownership of those accounts upon death of the account opener. Brokerage accounts, 401(k)s, IRAs and many other types of financial institutional accounts have designated beneficiaries on the account. These accounts are generally referred to as payable-on-death (“POD”) or transfer-on-death (“TOD”) accounts.
A TOD/POD account’s ownership will be transferred to the listed beneficiary in the financial institution’s records, even if a person’s Last Will and Testament states otherwise.
If the designated beneficiary predeceases the owner of the TOD/POD account then the property will pass to the secondary beneficiary. If there is no secondary beneficiary or the secondary beneficiary also predeceases the account owner, then the property falls into probate and can be controlled by the will. If there are no listed beneficiaries or the listed beneficiary is the estate, the TOD/POD account will also be controlled by the will and probate.
If the asset is a piece of real estate, and, if there is a will, then the will is probated and property transfers to the person listed as the heir under the will. If there is no will, then the realty is transferred under the intestate laws of the state.
When property is owned by multiple people it gets even more complex and I will delve into that with my next post.