Passing your assets to the next generation can be simple or it can be complicated, but even the simplest estate plan usually involves more than just a will.
A good example is if you have a retirement plan in addition to the usual bank accounts, investments, home and personal items. It is often the case that retirement assets are a major part of one’s estate (sometimes bigger than all other assets in the estate combined). A will does not determine who will receive your retirement assets at your death. Rather, it’s what you specified on a “beneficiary designation form” in the custody of the agent holding your retirement assets.
You probably signed a beneficiary designation form when you established your retirement plan. Do you know who you designated? Are you still happy with the designation or do you want to change it? Do you know who would be entitled to your retirement assets if the person you designated were to die before you do? What would happen if you and your designated family members were all wiped out on a family trip?
Life insurance benefits are another asset that transfer by virtue of a beneficiary designation form and not by will (unless you have named your estate as the beneficiary on the beneficiary designation form itself). Do you know who you named as the beneficiary of the life insurance you long ago purchased or were given? Do you know the identity of the life insurance company? Do you know who would receive your life insurance proceeds if your the beneficiary were to predecease you?
Similarly, if you have an annuity that does not terminate at your death, the beneficiary designation form for the annuity will determine who becomes entitled to the remainder of the annuity.
Jointly held assets, such as jointly held bank accounts and real estate you own jointly with another person, will pass automatically to the survivor at the death of the first joint owner to die. Of course, if you are the survivor of the joint relationship, the asset will be in your probate estate at your death unless you take action to remove it.
There are types of bank accounts that are similar in some respects to joint accounts. They permit you to designate a beneficiary but do not give your beneficiary access to your funds prior to your death. If you are the first to die, the assets in the account pass automatically without the necessity of probate to the beneficiary. These accounts are sometimes called “ITF” (in trust for) or “TOD” (transfer on death) accounts. As with a jointly held account, if your beneficiary predeceases you, the asset will be in your probate estate at your death unless you take action to remove it.
Bank accounts and investments in your name, real estate in your name and personal possessions owned at the time of your death are “probate assets”, and they will pass to whomever you have designated in your will. If you don’t have a will, the assets will pass to those designated under the laws of intestacy of the state where you are domiciled or, in the case of real estate under the laws of intestacy of the state where the real estate is located.
You may wish to transfer title to what would otherwise be probate assets to a “probate avoidance trust”, retaining the right to serve as the trustee and the right the right to modify or terminate the trust at any time. The trust instrument will describe how the trust assets are required be managed and to whom the assets will pass at your death. Only if the trust is funded during your lifetime (meaning that you transfer title to your assets to the trust during your lifetime), will the assets will “avoid probate”.
If you have a second home in your own name and it is located in a state other than where you are domiciled, you may wish to transfer it to a trust regardless of whether you place your other assets in a trust. The reason for this is to avoid an ancillary probate proceeding in the other state.
One feature people often seek with a probate avoidance trust is privacy. They want the identity of their assets and their value and the identity of their beneficiaries kept private, and they want their assets to be administered and distributed without the oversight of a court of law.
Though many people want their assets to forego the probate process, there are situations where some prefer their assets to be administered through the probate process. There may be a difficult or contentious family situation and a desire for the oversight of a court of law so that a judge has the final say with respect to the management of the estate and the disposition of its assets. This can provide an executor or administrator properly carrying out his or her responsibilities with the imprimatur of a court of law. At the same time, it can provide a beneficiary who believes that the executor or administrator is not administering the estate properly with an avenue for redress of his or her concerns during the probate process.
Given the many options for holding assets and transferring them to the desired beneficiaries, it is a good idea to have an estate planning binder prepared that identifies your major assets and contains copies of all of the documents (not just the ones prepared by your estate planning attorney) that will be needed to get your assets to your desired beneficiaries when you are no longer available to identify them or accomplish the task yourself.