When a person dies without a valid and enforceable will, ownership of the decedent’s property transfers to certain living heirs (i.e. surviving relatives) according to a statutory framework known as intestate succession. The law of intestate succession dictates who will receive a decedent’s property in these situations. The law of intestate succession is helpful to create default inheritance rules that apply when a person dies without having executed a will. Persons that execute a will during their lifetime can alter the default framework of intestate succession and specifically dictate who will receive their property when they die. A person who has executed a will during their lifetime is referred to as having died testate as opposed to intestate.
Transfers of property under the law of intestate succession and transfers of property by virtue of directions contained in a will have a common feature – both types of transfers will require court approval after the decedent dies in order to be effective. This court approval process is known as a probate case. If a probate case is required, a representative of the decedent, usually a family member, files a petition in the probate court asking the judge to make findings regarding the identity of the decedent’s surviving family members and creditors, the nature and extent of the decedent’s assets, and the validity of decedent’s will, if applicable. In most circumstances, if the property that you own at death transfers to your heirs under the law of intestate succession or under a will, your family members will have to file a probate case after your death.
An estate plan can be designed to transfer property at death without the need for your family members to file a probate case. This is possible because, in addition to transfers that occur through intestate succession and by the use of a will, there are certain legal arrangements that cause ownership of property to transfer to another person automatically upon death, and without the necessity of filing a probate case to validate the transfer. These types of arrangements are referred to as non-probate transfers. Non-probate transfers are popular because your selected beneficiaries can receive your property without being burdened by the time and expense that is associated with the filing of a probate case.
One method to accomplish a non-probate transfer is to convey ownership of property to a person that serves as a trustee under a legal document known as a trust. A trust is a contract wherein a trustee agrees to hold title to certain property and manage that property exclusively for the benefit of the beneficiaries of the trust. Once ownership of the property is conveyed to the trustee of a trust, the property can only be managed and distributed according to the terms of the trust. Furthermore, the trustee is permitted to transfer the trust property to the trust beneficiaries without the necessity of filing a probate case. A person can transfer ownership of their property to a trustee of a trust using a deed for real estate, an assignment for personal property, and by changing the name of the owner for an account.
Another mechanism for accomplishing a non-probate transfer is to convert ownership of real or personal property into a form of ownership called joint tenancy with right of survivorship. If property is owned by two people as joint tenants with right of survivorship, upon the death of one of the joint tenants, the decedent’s share of the property passes automatically by operation of law to the surviving joint tenant. Non-probate transfers can also be accomplished by titling an asset in a manner which reflects that the asset shall transfer-on-death (“TOD”) to one or more beneficiaries. Similar to property owned in joint tenancy with right of survivorship, property having a TOD designation or a designated beneficiary transfers automatically to the specified beneficiaries upon the death of the owner. A TOD beneficiary and/or designated beneficiary can be established for real estate, motor vehicles, insurance policies, annuity contracts, employee benefits, deferred compensation plans, individual retirement plans, securities, limited liability company interests, shares of stock, and bank deposit accounts.
In summary, there are essentially three broad categories for transferring property when the owner dies. These categories are: (1) intestate succession; (2) specifications contained in a will; and (3) non-probate transfers. The category that the property falls into will depend on the manner in which the property is owned when the owner dies. Most people plan to avoid intestate succession. Executing a will is usually preferable to intestate succession, but without further planning, the beneficiaries under the will face the burden of filing a probate case after the decedent dies. The ideal plan in most circumstances is to execute a will, known as a pour-over will (explained below), and to also make arrangements so that most or all of a person’s assets pass to their selected beneficiaries by use of a revocable trust and other non-probate transfers. This is accomplished by making arrangements prior to death which change the legal form of ownership into a form of ownership that permits a non-probate transfer to occur at death.
In light of the preference for non-probate transfers, many wills are designed to serve as a safeguard in case the necessary ownership changes were not accomplished prior to death with regard to some or all of the decedent’s property. In that case, the property that does not pass via a non-probate transfer will pass based upon the specifications in the will, but only after the will has been proven in a probate case. Under a typical estate plan, the will simply states that property owned by a decedent at death is to be conveyed to a trustee of a revocable trust and distributed according to the terms of the trust. That type of will is referred to as a “pour-over will” because it pours all of the decedent’s assets into the decedent’s revocable trust. In this regard, the pour-over will is merely a backup instrument designed to catch any assets that were not transferred to the trust while the decedent was alive.
Woner, Reeder & Girard P.A. can assist you in preparing your estate plan. The process begins with the completion of a questionnaire designed to organize your affairs and identify your dispositive intent. The next step is a consultation with one of our attorneys to explain the process and answer your questions. Draft estate planning documents will then be prepared for your review. Upon completion of your review of the drafts, a follow-up meeting will be scheduled for you to come in and execute your documents. As a result of our combined years of experience in preparing estate plans, we can often prepare an estate plan for an affordable fixed price as opposed to charging an hourly rate. Please contact us if you are interested in a complimentary, no-obligation consultation.