October 29, 2019
Don't Forget Asset Ownership When Evaluating Your Estate Plan
A blog post by Gregory J. Murphy
So, you’ve signed your estate planning documents. Nice work. But don’t forget that just having a Will and Trust is not enough. How you own your assets is an essential part of the equation, and should be reviewed to ensure that your plan works effectively and that assets pass to your intended beneficiaries. This is especially important if you’ve had significant life changes or obtained any assets following the execution of your documents.
Maybe you own a bank or investment account in your own name, or perhaps some tangible personal property, for example jewelry or artwork. Individually owned assets that don’t have a beneficiary designation are considered “probate” assets and your Will controls the disposition of these assets on your death. However, as described, below, many assets are non-probate, and their disposition is not governed by your Will.
Perhaps you are married and own a joint bank account with your spouse. Joint assets pass on your death to the surviving joint owner by operation of law rather than by a direction in your Will. On your death, your spouse automatically receives the entire account regardless of what your Will says (or even if you don’t have a Will). The key question is whether there is a “right of survivorship” in the co-owner. Have you reviewed the deed to your home recently? If you own your home with your spouse as joint tenants or tenants by the entirety (a special type of joint ownership for married couples), there is a right of survivorship, making the property non-probate in the first spouse’s estate.
Life insurance, retirement accounts, etc.
Now let’s say you have kids and wisely obtained life insurance and set up a retirement plan at work. These types of assets are governed by separate contracts, and are considered non-probate property. Upon your passing, the death benefit and retirement assets are distributed to the individuals named in a beneficiary designation form, and not based on the terms of your Will. Did you review these beneficiary designation forms after your first child was born? What about after your second child? A transfer on death designation also passes funds to the named beneficiaries rather than according to the terms of your Will.
Perhaps you’ve created a trust and have considered transferring the ownership of your assets to the trust during your lifetime. Once you transfer assets to your trust, you are no longer considered the legal owner. Your death does not change the ownership of the assets, as the assets will continue to be held by the Trustee. These assets are considered non-probate, which makes them immediately available for distribution to the beneficiaries or for payment of expenses after your death. The terms of your trust should dictate what happens to the property on your death, and funding your trust during your lifetime ensures a more fixed and efficient settlement of your estate.
You’ve definitely made a good decision to put an estate plan in place. But you should take the next step to make sure that the plan works as efficiently and effectively as possible by reviewing the ownership of your assets. Perhaps, like many individuals and families, the majority of your wealth is held in non-probate assets. If so, do jointly held assets support or contradict the overall intent of your plan? Are your beneficiary designation forms current? Your Will and Trust may provide that your assets are distributed to, or held for, your surviving spouse and then your children, but your desired intent may not be fulfilled if you don’t adequately consider the ownership of your assets.
If you have questions about estate planning, probate, trusts, and tax matters, please contact one of Conn Kavanaugh's experienced estate planning
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