Generally speaking, when it comes to establishing an estate plan, a Last Will & Testament is an essential document to execute. With a Will, the creator, or testator, can address many different things, but the main purpose of a Will is to provide direction as to whom should inherit the testator’s assets. The executor is the person appointed within the Will to administer the estate, and the Will must be submitted to the appropriate court for probate before the executor is authorized to act.
It is important for the testator to understand, however, that not all assets owned by the testator will pass under the direction of the Will. The most common classes of assets that do not pass through the estate or according to the terms of the Will are: (1) assets owned jointly by the testator and another person, (2) assets that have beneficiaries designated, and (3) assets owned by a trust. These types of assets are otherwise known as non-probate assets.
Jointly Owned Assets: If a person owns an asset jointly with another person, upon the death of the first owner, the surviving owner automatically, by operation of law, becomes sole owner of the asset. (example: real property owned as joint tenants with rights of survivorship (or tenants by the entirety in the case of a married couple), and jointly owned bank accounts.)
Assets with Beneficiaries Designated: If a person owns an account and designates beneficiaries on it, upon the account owner’s death, the listed beneficiaries automatically, by operation of law, become the next owners of the account. (example: retirement accounts, and transfer on death (TOD) accounts.)
Trust Assets: If a person creates a trust, the trust document dictates who inherits the trust assets upon the creator’s death. The trustee is automatically authorized by the trust document to distribute the trust asset to the stated beneficiaries after the creator passes away.
With non-probate assets, the transfer of ownership, or the authority to make a transfer of the ownership (in the case of trust assets), occurs automatically without the need for court approval or consideration of the terms of a Will. Long before the Will is approved through the probate process, the non-probate assets can be transferred to the rightful owner(s).
Since the terms of the non-probate assets determine who gets the assets after the owner passes away, it is imperative that the owner understand how each individual non-probate asset is set up to ensure the right person ends up with it. All too often, an owner fails to realize or remember that someone other than the desired recipient was added as a joint owner or designated as a beneficiary (usually many years before), or the owner mistakenly thinks the right person will get the asset under the terms of the Will.
If you are interested in establishing an estate plan, you should consult with an experienced Estate Planning attorney to conduct a review of your probate and non-probate assets. Given the time and expense associated with the probate process, you may even want to explore options that will allow you to eliminate the need to probate a Will, altogether.
By Wayne R. Carrabus, C.P.A., Esq., at Futterman, Lanza & Pasculli, LLP with offices in Smithtown, Bay Shore and Garden City, NY, and clients throughout metro New York. He concentrates his practice on Elder Law, Medicaid Planning, Medicaid Applications, Estate Planning, Probate and Estate Administration and Estate Taxes.