Secure Your Legacy: Ways to Transfer Assets After Death

When considering estate planning, many families concentrate on drafting a will and/or trust. Consider how to transfer assets by naming beneficiaries on accounts or owning property jointly with survivorship rights.

Passing assets through beneficiary designations and JTWROS is simple, cheap, and avoids probate. Probate is the costly legal process of transferring assets through court, either by will or state laws. Nevertheless, because beneficiary designations and assets held in JTWROS override both wills and trusts, a lack of coordination between these methods and the rest of your estate plan could jeopardize the entirety of your plan and lead to significant unintended estate tax implications.

For instance, consider Sally, whose revocable trust dictates equal asset distribution among her three children. Her IRA beneficiary designation has not changed.

It was set when her first child was born. Only one of her three children is named as a beneficiary. Consequently, that child would inherit Sally's entire IRA upon her death.

Similarly Mitch creates a trust for his 20-year-old son. The trust will help his son manage assets until he turns 35. Yet, his son is also designated as the transfer on death (TOD) beneficiary for his investment accounts. Consequently, without modifications to the TOD designation, his son would receive those assets outright rather than in trust.

Sally and Mitch spent a lot of time and money creating wills and trusts that matched their goals. However, their plans were disrupted in these situations. This happened because their account titles and beneficiary designations didn't match up.

To address this discrepancy, it's essential to review the four fundamental methods of asset distribution at death, along with key considerations for each. 

Pass to Beneficiary

This mostly applies to insurance, retirement savings, and investment accounts like IRAs, 401(k)s, Roth IRAs, and savings accounts.

Considerations:

• Opting for individual beneficiaries may waive the safeguarding benefits that establishing a trust for the beneficiary could offer.

• For accounts subject to fluctuating values, determining the precise allocation for each inheritor might pose challenges.

• Regular updates to beneficiary designations are necessary, especially with the opening of new accounts. It's common to encounter older accounts with designated beneficiaries alongside newer ones lacking such designations.

• If both the main and backup beneficiaries die before the account owner, the account will go through probate. Assets will be distributed based on the owner's estate plan or intestacy laws.

• Insufficient assets passing through probate could pose complications for the estate executor in covering the expenses, debts, and taxes of the estate. 

Automatic Transfer by Law

Assets are usually transferred through JTWROS or Tenancy by the Entirety for married couples. This transfer often involves real estate or joint bank/investment accounts. When one owner dies, the property automatically goes to the other owner(s) without needing to go through probate. This happens regardless of what the client's will or trust may say.

In states with community property laws, spouses typically share ownership of assets acquired during the marriage. Community property can transfer automatically, provided the asset is appropriately titled, and/or through a community property agreement.

Considerations:

• There are two additional forms of joint ownership: Tenants in Common and Community Property (without the right of survivorship). When one joint owner dies, their share of the property goes to their estate and must go through probate.

• If the other party in a JTWROS agreement is a non-spouse, the asset may be subject to gift taxes.

• If you own something with someone else, their creditors could take it. This puts the asset at risk. 

Transferred through Trust 

Trustees oversee trust assets and distribute them to beneficiaries according to the trust agreement terms.

Considerations:

• A trust solely manages assets owned by the trust, meaning only assets titled in the trust's name are included.

• In certain scenarios, a will may designate assets to be transferred to a trust upon death. This type of will is known as a "pour-over" will. However, assets passing through a will are subject to probate. 

Subject to Probate

If an asset doesn't pass through law, contract, or trust, it typically transfers to heirs via a will through a legal procedure called probate. Depending on the estate's value and the state of residence of the deceased, probate could last for several years, with substantial fees.

Considerations:

• Probate becomes a matter of public record, reducing family privacy.

• If someone who passed away owned property in different states, their belongings may need to go through probate in each state. This can complicate estate settlement due to differing rules and procedures across states.

Seek Professional Guidance

Every situation is unique. It is important to seek assistance from professionals such as financial advisors, lawyers, and tax professionals. They can help ensure that the estate is managed properly. This will help to streamline the process and achieve the desired outcome.

Bottom Line

Remember, proper planning and professional guidance can make a significant difference in the outcome of estate settlement. Having a well-thought-out plan in place can greatly impact the final results.

Sources:

https://www.fidelity.com/learning-center/wealth-management-insights/4-ways-to-pass-on-assets

Disclosures:

This information is an overview and should not be considered as specific guidance or recommendations for any individual or business.

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This material is provided as a courtesy and for educational purposes only. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.

These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. Neither the named Representative nor Advisory Services Network, LLC gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.