About 7 months ago, I went though the various concerns people confront using joint tenancy with the right of survivorship (JTWROS) as an estate plan. The next step is to demonstrate the issues between probate asset and a non-probate asset. As you can from an Estate of the Month I did in my newsletter, not correctly accounting for probate assets can lead to problems.
Probate assets are assets that are in the sole name of the decedent at the decedent’s passing without any other owners or without a payable on death or similar type of beneficiary designation. Individual assets include bank accounts, investment accounts, stocks and bonds, cars, boats, airplanes, business interests, and real estate. Any portion of an asset owned by the decedent as tenants in common would be a probate asset, too. Probate assets are controlled by a person’s Last Will and Testament and the Will dictates to whom that asset will be bequeathed.
Non-probate assets are the assets not controlled by the decedent’s will and are distributed in some other fashion. Examples of non-probate assets include:
- Property owned as either as JTWROS with another person or tenants by the entirety by a husband and wife. A will also does not control JTWROS assets because the decedent loses ownership of the asset upon the decedent’s death. Wills only control assets after the testator dies.
- Assets in which you retain a life estate and the remainder passes to a non-charitable beneficiary other than yourself i.e. the age old property example: Blackthorn to A for life, then to B.
- Assets owned by your Revocable Living Trust.
- Assets that pass by operation of law when a decedent has designated a beneficiary to receive the asset e.g. a husband lists his wife as the primary beneficiary to receive his life insurance on his death. Other designated beneficiary examples include:
- Payable on death (POD) accounts, transfer on death (TOD) accounts, in trust for (ITF) accounts and Totten trusts;
- Retirement accounts, including IRAs, 401(k)s and annuities; or
- Health savings accounts (HSAs) or medical savings accounts (MSAs).
To make it even more confusing, non-probate assets, especially assets in number 4 above can revert to probate assets.
The decedent can take active steps to make the non-probate asset a probate asset. For example, a decedent can name the decedent’s estate as the beneficiary of a life insurance policy. The estate is the beneficiary of the life insurance policy and, if there is a will, the will controls where the death benefits go.
The decedent can take also passive steps for the non-probate asset to become a probate asset. In a very common scenario, the decedent will not name a beneficiary on a POD account and, thus, the estate is considered the beneficiary. Another passive way is for the decedent to not update designated beneficiaries, if the primary and secondary beneficiaries have passed away. The non-probate asset will flow to the estate since no beneficiary is there to receive the non-probate asset.
Making sure how your assets are transferred can go a long way to preventing assets being distributed to the wrong person or contradictory to your intent.
Copyright © 2013 Law Office of Christopher Guest PLLC.