The Alternative Press

Some years ago I was hired to help an executor administer his uncle “Bill’s” estate. When I looked at Bill’s Will, it was obvious that he had had a falling out with his daughter “Alice.” Bill’s Will left nothing to Alice. It also contained an Article making it very clear that this wasn’t an accident. The Will stated that Bill expressly excluded Alice from his estate. I guess Bill figured that once he had signed that Will, Alice would never see a dime. Unfortunately for Bill, his daughter Alice ended up with over half of his estate. How, if Alice was expressly excluded in the Will, could that ever happen?

 It turns out that Bill had forgotten that years earlier he had named Alice as the beneficiary of his rather substantial IRA. She was also named as the beneficiary of several pay on death (“POD”) bank accounts. In addition, she was named as the beneficiary of Bill’s old life insurance policy. All of these “non-probate” assets passed outside of Bill’s Will, directly to his daughter Alice…and contrary to the specific terms of his Will, frustrating Bill’s specific intent.

 Understanding Probate vs. Non-Probate Property. As part of the estate planning process, it is important to have assets titled in a manner consistent with the client’s estate plan. Upon death, assets can pass by Will, by Trust, by POD designation, by joint tenancy with right of survivorship, or by beneficiary designation. It is important to remember that a Will only controls the disposition of those assets that are held in the decedent’s individual name, or to which the decedent’s probate estate would be entitled (e.g., a life insurance policy made payable to the estate). A Will does not control non-probate assets which instead pass outside the Will.

 Here are some examples of non-probate assets that must be considered when formulating an estate plan:

 1. Assets Passing by Contract or Beneficiary Designation. Life insurance policies are paid to the beneficiaries named in the insurance contract upon the death of the insured. Despite what the decedent’s Will might provide, the insurance company will pay the policy proceeds only as the policy’s beneficiary form directs. Likewise, IRA’s are paid out according to the terms of the IRA beneficiary designation on file with the IRA Custodian. Unless the beneficiary named in the designation is the decedent’s estate (not often recommended for retirement accounts), the assets subject to the beneficiary designation will not ordinarily pass as provided in the decedent’s Will. Therefore, provisions in a Will purporting to direct the beneficiary of an IRA or insurance policy will have no effect.

 2. Jointly Owned Property. Assets titled in joint tenancy (e.g. owned by husband and wife or by “A” and “B” with rights of survivorship) will ordinarily pass on death to the surviving joint owner. Joint property with rights of survivorship will not ordinarily pass under the decedent’s Will. Oftentimes, clients will re-title property into joint names for convenience sake (i.e. to assist a parent with asset management or for bill paying). This can have a dramatic and unintended impact on the client’s estate plan. For example, if a large bank account or brokerage account is put into joint names with the client and one of his/her children, upon the client’s death, title to the joint account can pass to the child, even though the client’s Will provides for an equal distribution among the children. In this situation, keeping assets in the parent’s name, and using a Durable Power of Attorney to allow the child to manage the bank or brokerage account, is usually a better option.

 3. Trust Assets. Trusts are often created during lifetime for a variety of reasons (both tax and otherwise).  A trust may contain provisions that direct what happens to the trust assets upon the client’s death. Sometimes, the provisions of the trust may be significantly different from the provisions of the client’s Will. The Trust should be carefully reviewed in conjunction with the client’s Will so that the effect of the trust distribution on the client’s overall estate plan is understood.

 As the years pass, it is often difficult to remember what assets have been titled in what manner, and whether the ultimate passage of the assets (as dictated by the titles) is what the client now wants – particularly if the client’s relationships with his/her intended beneficiaries have changed over the years. It is important for everyone to review not only his/her estate plan every few years (Will, Trust, etc.) but also to review how their assets are titled, to be sure that the intended beneficiaries receive what they are supposed to receive…nothing more, and nothing less.

 The information provided here is necessarily general and is not intended as legal advice or a substitute for legal advice. Each case must be reviewed and planned in light of its own particular facts. If you have any questions regarding this article, please contact Jonathan S. Chester at jchester@lindabury.com.