Proper ownership of your assets is a critical step to ensure that your estate plan works properly. This is especially important when your estate plan creates trusts upon your death. There are several ways to transfer assets upon your death. I will cover a few.
Transferring Assets Through Probate. Probate is the legal process used to transfer title of property that does not automatically transfer to another owner by other means. A formal case is opened in the appropriate court, and your Will is “probated.” Although probate does not always require a formal estate administration, it usually does. Probate is often used as a backup. It is used to transfer the things we were not able to cover with other means, such as a vehicle, a personal checking account, uncashed checks to the deceased person, etc.
Transferring Assets Through a Revocable Trust. In many cases, a Revocable Trust will be your primary estate planning tool. Revocable Trusts are often used to help organize assets, minimize the costs and delays of administration, avoid court involvement in your estate, minimize the work of your fiduciaries upon your death, enhance incapacity protections, and maintain privacy. The key to a Revocable Trust is ensuring that your assets are titled in your Trust or made payable to your Trust upon your death. When you become incapacitated or pass away, your successor trustee simply steps into your place and takes over management of your Trust.
Transferring Assets Through Transfer on Death or Payable on Death Designations. For many estates, transfer on death or payable on death designations are the primary tool used for asset transfer and probate avoidance. However, these designations should be used cautiously. Many carefully designed estate plans have been rendered useless because of transfer on death designations. Well-meaning friends and professional advisors who do not understand the structure of your estate plan may suggest that you use transfer on death designations to avoid probate. If you name your five-year old daughter as a beneficiary, the account will be paid to her, not her trust. We often use transfer on death agreements with small business interests.
Transferring Property with Beneficiary Designations. Life insurance and retirement accounts are commonly transferred by beneficiary designation. If you do not have a named beneficiary, the policy will determine the beneficiary. The default beneficiary is often the decedent’s estate. We have represented several estates that would not have been required had a beneficiary been designated. It is important, however, to name the correct beneficiary. If you wish to designate a trust, your beneficiary designation must indicate such.
Transferring Assets Through Joint Ownership with Right of Survivorship or Tenancy by the Entirety. Most married couples own real estate as tenants by the entirety. This is a very important asset protection tool. Tenancy by the entirety can only be created by a married couple and can only be created in real estate and mobile homes. Title is vested in the survivor, and the creditors of either owner (other than the IRS) cannot reach the property either during life or after death. Joint ownership with right of survivorship can be used by anyone for almost any asset. It does not have the same creditor protection as tenancy by the entirety. But it can protect certain assets from the creditors of a deceased person’s estate. This method is often used to transfer financial accounts between co-owners. Two key points to remember are: 1) the deceased person’s share of a joint tenancy financial account or security interest is not protected from the decedent’s creditors; and 2) the account will be owned by the survivor – not a trust created under your Will or Revocable Trust for his or her benefit.
Transferring Assets Through Gifts with a Reserved Life Estate. We often see transfers with a reserved life estate used for real property. This can only be accomplished by deed. You can also leave a life estate in a Will, but such a life estate would be granted rather than reserved.
Your assets and the design of your estate plan will dictate which methods are best.