Written by Crystal McDonnough for The WRANGLER
One of the myths I often hear is, “I don’t need a will because everything will automatically go to my family.” Certain assets may pass to your heirs or beneficiaries automatically without a will or outside of a will, but this is only limited to certain circumstances.
The truth is, without a will, a court will administer your estate per the probate laws of that state. The court will decide who receives your assets and property according to the statutes and laws governing inheritance when there is no will in place. In addition, the court will decide who will be the executor or personal representative of your estate. If you do have a will, then your designated executor or personal representative will administer your will through the probate court and distribute your assets and property per your wishes according to your will.
There are several ways to transfer assets outside of a will. This is not meant to be a complete list, but rather provides a sampling of common options that may be used to transfer certain interests regardless of a will.
• Life insurance
• Retirement or investment accounts
• Survivorship interests
• Payable on death (POD)
• Transfer on death (TOD)
• Beneficiary deed (depending on the state)
•Trusts: revocable and irrevocable and effective during lifetime or at death
Life insurance policies and retirement or investment accounts with named beneficiaries will automatically be distributed directly to the named beneficiaries regardless of a will. If you have a life insurance policy, then you probably had the discussion with your agent to decide who should be the named beneficiaries to your policy. Likewise, any retirement or investment accounts will likely have named beneficiaries.
I have seen some instances where a person forgot to name a beneficiary, in fact, it happened in my own family. My grandparents had a small investment, but their agent forgot to have them designate a beneficiary. After my grandparents passed away, it was discovered that there was no beneficiary of this account. My family had to open a probate in Nebraska just for this one little investment. Fortunately, my
grandparents each had a will in place which made it easier to work through the probate court. The account was eventually distributed to the correct beneficiaries, but cost unnecessary time and money to go through the probate.
Survivorship interests are most common for married couples. Often the property or assets are owned jointly with rights of survivorship. When one spouse dies, the surviving spouse retains sole ownership regardless of a will. For example, a married couple owns their home jointly with rights of survivorship. Survivorship interests can be real property such as a home or land, or they can be personal property
such as a bank account, business interest, stocks, etc. The laws of each state determine how survivorship interests function. I have seen situations where survivorship interests were not properly done, resulting in probates and other court cases. It is always better to prepare a survivorship interest correctly the first time, rather than having to fix it after someone has died.
Payable on death or transfer on death are exactly as they are described and transfer assets outside a will. When the original owner of that asset dies, the asset is either transferred or paid to the beneficiary. Bank accounts typically use this type of transfer, but other assets can also take advantage of this type of transfer outside a will. Some states allow a beneficiary deed or a transfer on death deed. This type of transfer is very state specific. It is important to understand your states laws on transferring deeds and real property.
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Trusts can be a great tool to transfer assets outside a will. The use of a trust may also allow the estate to avoid the cost and time associated with a probate if done correctly. There are many different types of
trusts. The most common is an irrevocable living trust that can be changed, amended, or even terminated during your lifetime. During your lifetime, your assets are often deeded or transferred to your
trust or the trustee of your trust. The trust or trustee takes ownership of these assets and then at the time of death, the successor trustee distributes those assets to your beneficiaries according to the terms
of the trust.
Effective estate planning requires understanding your objectives. Estate planning is simply the process designed to help you ensure your assets are distributed upon your death in accordance with your wishes. The path you chose to meet your goals is up to you. It depends on how you want to transfer your assets to your heirs, understanding possible tax implications to your estate and heirs, planning for incapacity, and preparing for an orderly succession.
Crystal McDonough is an attorney and founder of McDonough Law Group, a regional law firm with offices and attorneys in many states. This is the first of a series of articles where Crystal discusses succession planning, estate planning, and probates and estate administration. She can be reached at firstname.lastname@example.org or 970-776-3311.
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