When thinking about the transfer of assets after their death, many people often make one of two erroneous assumptions regarding probate (a court proceeding transferring assets to beneficiaries and/or heirs-at-law):
- They are married, so everything they own will go directly to their spouse upon their death; or
- They have a Will (last will and testament), so their assets go to the parties named in the Will without having to go through probate.
Both of these assumptions are myths.
The true determination of whether or not your estate will be required to go through probate is based solely on how your assets are titled at the time of your death.
Below is an outline discussing how variously titled assets pass at death:
1. Assets held in the name of a Trust (Revocable or Irrevocable) do NOT require probate (unless the trust requires it). Assets pass to the beneficiaries pursuant to the directions in the trust.
2. Assets carrying a straight beneficiary designation do NOT require probate, but rather are paid directly to the named beneficiary (unless the beneficiary is the estate). Examples include life insurance policies, Individual Retirement Accounts (IRAs) and 401k plans.
3. It is possible to add a beneficiary designation to certain financial accounts by designating them as “Pay on Death” (POD), “Transfer on Death” (TOD) or “In Trust For” (ITF). This includes Bank and/or brokerage accounts, Certificates of Deposit, and U.S. Savings Bonds. These assets also pass directly to the beneficiary, but you should make sure that the designation is reflected on your statements; otherwise, they may not be properly reflected in the institution’s records.
4. Assets titled as “Tenants by the Entireties” (TBE) – a form of ownership held jointly between a husband and wife – do NOT require probate at the death of the first spouse, when title passes directly to the surviving spouse, but would require probate at the second death.
5. Assets titled as “Joint Tenants with Rights of Survivorship” (JTWROS) in the name of two or more parties do NOT require probate until the death of the last surviving owner. If a husband and wife own property together, it is highly recommended that they use TBE instead of JTWROS ownership, however. Under JTWROS, each owner’s interest is subject to being taken by a creditor, whereas under TBE, neither spouse’s interest can be taken by a creditor of just the other.
6. Assets titled as “Tenants in Common”, which is property titled in the name of two or more parties without the specific survivorship designation language, REQUIRES probate at the death of any owner.
7. Any asset titled solely in the name of the decedent that does not have a joint owner or beneficiary REQUIRES probate. If you have a will, the directions in your will control how your assets are distributed but, if you do not have a will, the laws of the state will control who gets what. Often, this will not be what you intend. For example, if you have children from a prior marriage, your spouse will have to share the assets with your children.
Of course, as with all things in life, these rules are not exclusive. There may be other extenuating circumstances that may require a probate administration to be opened, such as potential creditor issues, filing a lawsuit on behalf of the estate, or even the loss by a financial institution of a beneficiary designation.
For more information, or to determine whether your loved one’s estate must go through the court system, please call our probate department at (904) 807-2169.