A Brief Summary of the Various Ways Assets Pass After Death

Everyone has an estate plan. The laws of intestacy lay out how assets pass after someone has died. This means that without a Will, everything will be divided up the way the law says it should. However, these laws of intestacy do not always line up with a person’s wishes and they leave an estate subject to a more burdensome and more expensive probate process.

An effective estate planning attorney can ensure your assets are distributed according to your wishes in an efficient way. There are three basic ways, other than intestacy, assets pass after someone has died:

  1. Last Will and Testament (a “Will”)
  2. Revocable/inter vivos Trust (a “Trust”)
  3. Beneficiary/pay-on-death/transfer-on-death/ designation or right of survivorship

Each of these methods can be used to pass assets from you to your beneficiaries, and they are often used in combination with each other. The table below gives a brief summary of each method:

One of the terms above is “probate”. Probate is the process of submitting your Will to the court, giving notice to creditors and heirs, and distributing your assets. It is required for all estates where the assets passing by Will are more than $50,000.00 total. As a court matter, it is a public record. This means any person can view the Will and reported assets. A Will eases the probate process by naming a “personal representative” to manage your affairs. Probate can be problematic if there are disgruntled heirs since they have the right to raise objections – costing the estate time and money.

A Trust can be set up during life (inter vivos) to avoid the probate process entirely. Trusts are private matters between you and the Trustee. The Trustee is a person named to manage the Trust assets. While you are alive, you can be the Trustee. When assets are held in a Trust, they can be protected from creditors of the beneficiaries. Holding assets in a Trust also prevents a beneficiary from inheriting assets before they are mature enough to handle it. For example, a Trust might hold assets until the beneficiaries reach age 35. Trusts can contain other special provisions expressing your values (e.g. educational, charitable trusts). Trusts are also an effective way to hold assets when the administration process needs to be more autonomous. This might be because of purchase options, estate tax concerns, quick sale of assets, or disproportional treatment of beneficiaries. Sometimes it makes sense to put Trust language in a Will – typically where the Trust will only be needed if there are young beneficiaries. An estate plan using a Trust will always also include a Will to direct any stray assets to the Trust. One of the drawbacks of a Trust is that it is more expensive to establish than a Will.

Beneficiary designations on bank accounts, life insurance policies, stock accounts, and the like complete the estate plan. When using a Trust, it often makes sense to name the Trust as primary or secondary beneficiary of an account. This ensures that the special provisions of the Trust apply to the assets. When using a Will, it often makes sense to name individuals as beneficiaries to keep those assets from passing through probate. If the assets passing by Will are kept below $75,000.00 (updated in 2016), the probate process can be avoided.

Your estate plan should be a reflection of your wishes and values. It should also be prepared in a way that best fits the realities of your situation. The right estate planning attorney can accomplish these goals.

For more information, contact the attorneys at Ward & Oehler, Ltd. or visit us on our facebook page.

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Categories: Estate Planning