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Beneficiary Designations and Probate Assets
The following is provided for informational purposes only and is not, nor should it be construed as legal advice.
I am often asked, “How do my assets transfer when I die?” The answer: it depends. At death, assets are categorized into two classifications: non-probate assets and probate assets.
An example of a non-probate asset is a financial account with a designated beneficiary. If you named a beneficiary on your account, your account will pass directly to that named beneficiary at your death. Your Will has no effect on these accounts. For example, if you designate your adult child as a beneficiary under your life insurance policy, but your surviving spouse is the sole beneficiary under your Will, the life insurance proceeds will be distributed to your adult child after he/she proves that you have died (by providing the life insurance company with a death certificate).
However, if you did not designate a beneficiary, or if the beneficiary predeceased you, the account distribution depends on the contract with the financial institution. Some institutions mandate that the account will pass to your estate; some mandate that it will automatically pass to your spouse. So, in the above example, if your adult child predeceases you and you didn’t name a contingent (or secondary) beneficiary on your life insurance policy, it is possible that the proceeds will pass to your estate. It is vital to know what your contract with the financial institution outlines, and it is just as important to name a contingent beneficiary.
Conventional bank accounts, such as your checking and savings account, are designed in various formats. It is critical to know how your account is set-up. If a person is a signer on your account, some people may assume this account will automatically pass to that signer at your death. However, this is not necessarily the case. In order for a bank account to pass directly to a joint tenant (i.e., another signer) there must be a right of survivorship provision. Review the paperwork you signed when you opened your account, or call the bank to confirm whether or not it is set up as a right of survivorship account. If there is no right of survivorship provision on your joint tenant account, the financial institution will freeze the account until the estate is probated and someone is appointed by the Court to be in charge of the estate. This will delay access to your account by your heirs.
Life estate deeds, transfer on death deeds, and Lady Bird deeds are all complex methods of ensuring the non-probate transfer of real estate at your death. However, each of these deeds require specific language, and may harbor unknown pitfalls, so consult an attorney to discuss advantages and disadvantages before making the transfer.
Properties without a beneficiary designation, or without right of survivorship provisions are probate assets. Examples of these types of properties might be a house, a car, business interests, or an account with no named beneficiary. These types of assets will pass via the deceased’s Will. If the deceased did not make a Will, such property will pass via the laws of intestacy enacted by the State. Transferring these assets will involve probate. Therefore, it is important to know the entirety of your estate and that there is a valid method of transferring each asset before your heirs move forward with any after-death proceeding. You should review your assets and discuss a plan with your financial advisor and attorney so that you know and are comfortable with how your assets will be handled upon your death.