There are four separate ways an asset can go from being owned by you during your life, to being owned by someone else when you die. Here they are:
Number 1 – Joint Ownership With Rights of Survivorship:
If you own a bank account, or a piece of land, or some other asset together with someone else, that asset may (or may not) pass to the joint owner automatically when you die (“by operation of law” a lawyer might say). If the asset does pass automatically (i.e., it’s owned with a “Right of Survivorship”), your ownership in that asset miraculously disappears (or dissolves into nothing) the moment before you die. And since you don’t own the asset when you die, the asset (i) never becomes owned by your estate, (ii) avoids probate, and (ii) is NOT governed by what your Will says. But understand that many jointly owned assets DO NOT automatically pass to the joint owner. The only way to know for sure is to look at the bank account agreement, the deed to the property, the title, and to know the laws of the state governing that asset. Not knowing for sure can lead to awful results.
Number 2 – Beneficiary Designation:
Just like a piece of property owned jointly with a Right of Survivorship, assets that have a “Beneficiary Designation” pass automatically, skip over the Estate and Probate, and are not governed by your Will. Classic examples of these are Life Insurance policies and retirement accounts like IRAs and 401Ks. When you sign up for Life Insurance, an IRA, or some other account (like an annuity or TOD account) with a “beneficiary designation,” you listed who you wanted to receive the asset or the life insurance proceeds when you died. If you are not positive about who is
listed, you should check as soon as possible. Once again, not knowing for sure can lead to awful results.
Number 3 – A Trust:
After you create a Loving Trust, all assets transferred to it will pass to your intended family and loved one’s in exactly the manner you spell out. These
assets skip over your Estate and avoid Probate. They also are not governed by your Will, but unlike “joint ownership with rights of survivorship” and “beneficiary
designation” assets you do have control because your Loving Trust contains all your instructions and wishes. Your Loving Trust also allows you to name someone to
manage your trust assets if you become disabled without involving the court or a guardianship proceeding. Your Loving Trust is also a private document. Most states
have laws requiring that your Will be filed with the court within a certain time frame even if no probate is necessary. Not so with a Trust.
Number 4 – Probate:
If an asset is simply owned by you alone and does not pass by one of the preceding three methods, then we are back to that problem that gives the
lawyers fits. Namely, that we can’t have “stuff” that belongs to no one, so we need an Estate and the Probate process that governs it. Interestingly, many people mistakenly
think that a Will avoids probate. It does not. The Will is the document that dictates who will receive the assets in your probate estate. So if you can successfully avoid
probate by using one of the first three methods described above, your Will really does nothing.
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January 23, 2023
