How Assets Transfer

| June 25, 2021

The sad fact is that too often our estates do not go to our intended beneficiaries. This is not to say that we have not done all of the right things. We went to the attorney, often several times. We participated in a formal signing ceremony at a long conference table, usually in a room lined with an impressive number of leather-bound books. Then, when it is too late, bank and investment accounts go to the wrong people. Retirement plans are paid to one person to the exclusion of other heirs or our life insurance is paid to our ex-spouse. Ouch! The possibilities are too long to list. At the bottom of these plans-gone-wrong is usually a misunderstanding of how our property transfers at death.

Many people are surprised that all of their assets will not pass via their wills. Generally, our wills control assets we have in our own names, in tenancy in common, or as community property. These assets are said to transfer by will or intestacy. Assets that we own with someone as joint tenants with rights of survivorship (JTWROS) or as tenancy by entirety will pass to the joint owner. After all, how can we direct through our wills assets that already belong to somebody else? We may also have signed payable-on death (POD) or transferable-on-death (TOD) forms that name beneficiaries. These arrangements will cheaply and efficiently transfer our assets to whomever we have named as beneficiaries. Usually, providing identification and a death certificate is all we need to do to make a claim. The accounts will not pass through your will. Instead, these arrangements are said to pass by operation of law.

Other assets that will generally not be distributed as directed in your will are life insurance policies, assets in trust, and retirement assets. Insurance policies and retirement plans will go to the named beneficiaries. This is similar to TOD and POD, but through contract, not through arrangements found in law. An insurance policy is a contract. Part of that contract includes beneficiary payment instructions. Assets in trust also pass by contract. Our retirement plans are types of trusts and you may have noticed that the title of your IRA, for example, says something like “such and such for the benefit of (FBO) Mary Jones.” Many of us establish our own trusts, name a series of trustees, and list the details of what must be done, by whom, and under what circumstances. Assets that pass by operation of law or by contract are said to “avoid probate.” Probate being the process of settling estates through the probate-court system. We shall have more on that in a future blog. Generally, avoiding probate saves costs, but there may be other reasons that we may wish for our assets to pass through the probate process.

Where we go wrong is by having specific instructions in our wills and trusts, but then putting others on accounts as joint owners, thereby bypassing our plans. We may also undo the intentions stated in our wills and trusts through TOD and POD arrangements. Sometimes we make mistakes with the beneficiaries of our retirement plans and insurance contracts, not realizing that we are partially or completely undoing our estate-planning documents.

All of these ways to transfer assets are great tools when used correctly and in a coordinated way. Our job is to help you develop that coordinated plan and keep it current. We are happy to do regular updates for you, including a net-worth statement that shows how assets are owned. We are glad to review your beneficiary designations and welcome the opportunity to work with your other professionals. As always, we do not practice law and do not sell insurance. Please consult a competent attorney. The information we are providing here is necessarily incomplete and for informational purposes only.