How do assets pass when someone dies? In some form or fashion, this is the most common question we get from the family after someone passes away. And there is a lot of misunderstanding and confusion about it. For instance, many people think that the law says a surviving spouse automatically gets all the assets. It may actually happen that the spouse ends up with all the assets, but that is not how the law works.
When someone dies, the decedent’s assets can pass in any of 4 different ways. We have some families that only 1 or 2 ways come into play. We have other families where all 4 different ways are involved. Please note, there are a lot more intricacies to each of these categories. Below is just a brief overview.
With beneficiary designated property, at the decedent’s death, the property passes to the named beneficiary or beneficiaries. This category includes items such as insurance policies, and accounts with a designated beneficiary, such as a retirement account or an account with a Transfer on Death designation. A will has no authority over a beneficiary designation. If the beneficiary designation says to give the insurance proceeds to “my daughter, Sarah”, but the will has a provision that states, “All of my insurance proceeds shall go to my daughter, Catherine”, the beneficiary designation controls. The will’s provisions have no legal effect to give the life insurance to Catherine. Generally, the beneficiary does not have to go through the court and the probate process to receive the life insurance money.
Right of survivorship
With Right of Survivorship property, at the decedent’s death, the property passes to the surviving owners. Generally, when property is titled in both the husband and wife’s names, it receives a special designation called “Tenants by the Entireties”. As part of a husband and wife owning an asset as Tenants by the Entireties, it contains a right of survivorship. When the first of a couple dies, everything they own together automatically passes to the survivor. This is why people think that EVERYTHING passes to the surviving spouse at the first death. But this is not correct. Only those assets that are titled in both their names pass to the survivor. It’s when a couple has all their assets titled in both their names, where it does result in the surviving spouse ending up with the assets. Non-spouse people can own assets together with a right of survivorship, but it often needs to be clearly stated in the title. Some assets may have the designation of “JTROS,” which means “joint tenants with right of survivorship.” Like the beneficiary designated asset above, generally, the will has no control over this asset and the survivor does not have to go through the court and the probate process to receive ownership in the asset.
Property owned by a trust
Property held by a trust, whether a revocable trust or an irrevocable trust, passes pursuant to the trust provisions. Like the beneficiary designated assets and right of survivor assets above, generally, the will has no control over an asset held by a trust. The trust’s provisions control who, how, and when the beneficiary receives the assets.
Property that does not pass by way of any of the above three categories passes by the will, or if there is no will, it passes “intestate”. Property that passes this way must go through the court probate process. Generally, this includes three types of assets:
Assets that are owned solely in the decedent’s name.
Assets that are owned jointly with another person, but as tenants in common, without a right of survivorship. In this instance, only the decedent’s partial interest in the property passes by his or her will. The portion owned by the other owner passes by his or her own will.
Sometimes a Beneficiary Designated asset lists the decedent’s “estate” as the beneficiary. In this situation, the asset is controlled by the will’s provisions and will have to go through the court and probate process.
If you have any questions or comments about this topic, please do not hesitate to contact the estate planning lawyers at Martin Heller Potempa & Sheppard, PLLC.
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