How your accounts are owned makes a big difference in estate planning. The main objective is usually to ensure that no accounts and property are in only your name when you die. Otherwise, they will be subject to probate, which is a costly, public, and time-consuming court process that many people prefer to avoid. Therefore, it is important that you review your accounts and beneficiary designations to be sure that the death of your loved one has not compromised your previously established plan.
Accounts with beneficiary designations, such as life insurance policies, retirement accounts, and annuities, will be distributed at your death, without probate court involvement, to the beneficiaries you have named. However, if you named only one beneficiary (the primary beneficiary) and that person predeceases you, the account will be distributed at your death according to the default rules in the policy or account agreement unless you update the primary beneficiary designation or have named a backup (contingent beneficiary). These default rules may give the balance of the account or policy to your spouse, your heirs (as defined by applicable state law), or your estate (which will require your loved ones to go through probate).
Similarly, some accounts allow you to name a beneficiary via a pay-on-death designation (cash accounts) or a transfer-on-death registration (investment, brokerage, or stock accounts). These forms of beneficiary designation allow you to retain ownership but provide a way for the account to be transferred at your death to the named beneficiary outside the probate process. It is important that you know which accounts have these types of beneficiary designation: if your pay-on-death or transfer-on-death beneficiary predeceases you and you have no contingent beneficiary, you need to update the designations or face the account being subject to probate.
In some cases, to avoid probate, you may have added another person to an account or a property's title so that it is owned jointly with rights of survivorship. This form of ownership means that at the death of the first owner, the surviving owner automatically owns the entire account or property without going through probate. If you are relying on this method to avoid probate and your co-owner is deceased, we need to discuss other planning options because you now own the entire account or property individually, which, without further planning, means that it will have to go through probate at your death. The same rule applies to any property you may own with your spouse as tenants by the entirety. If your spouse is deceased, you are now the sole owner and will need to consider other planning options for the property if you intend to avoid probate.
If your estate plan includes a revocable living trust (RLT), you should have transferred ownership of most of your accounts and property (with some exceptions, such as retirement accounts) from yourself as an individual to the RLT. Review your accounts and property and make sure that your RLT is the owner of the accounts and property discussed above.
If you inherited accounts and property from your deceased loved one or recently discovered or acquired new accounts or property, you must address these new items in your estate plan. Depending on the nature and size of these new items, you may need to consider modifying your existing estate plan or adding an additional planning tool, such as a special trust. If you are able to name a beneficiary for the account, be sure to do this as soon as possible.
Have you completed your estate plan?
If you began the estate planning process but did not finish it, or if you have discovered accounts or property that now need to be planned for, act now. Without an estate plan in place, the court will make all of your decisions for you, such as:
- who will receive your money and property at your death,
- how much each person will receive, and
- when each person will be entitled to receive the money and property (adults will likely receive their entire share right away).
We can guide you through the process.
Our office is here to help you review your accounts and property to ensure that you and your loved ones are protected. Give us a call today to schedule a virtual or in-person consultation. We can discuss the types of accounts and property you own, what will happen to them when you pass away, and how you can leave a lasting legacy.