Think of everything you own: life insurance policies, annuities, IRAs, 401ks, retirement plans, pensions, brokerage accounts, all the bank accounts and money markets and CDs, your home, other real estate, business interest, autos and finally, all the stuff in and around your home and on your property, furniture, computers, TVs, firearms, tools, paintings, pianos . . .
We’re going to classify your assets as either probate or non probate.
Probate assets are those controlled by your will: the home and other real estate, the cars and the personal property, the stuff in your home and cars.
Non-probate assets include life insurance, IRAs, 401ks and 403bs, and certain bank accounts and brokerage accounts. They go directly to the beneficiaries you have designated. The will does not control their distribution. Read the prior sentence again. So accounts you own JTWROS (joint tenancy with rights of survivorship), or you’ve made POD/TOD (payable on death/transferable on death) go to those persons who survive you. Life insurance proceeds and IRA’s go to the beneficiaries you’ve designated.
I can’t tell you how many times my clients have looked at me in shock when they’ve fully grasped this. Let me tell a common tale: Mom survived dad. Her daughter has become her big helper again. They re-titled accounts JTWROS and made daughter beneficiary for the other financial products. Mom’s will is good and valid and says all her assets go equally to her two sons and one daughter. They all think the estate, the probate and non-probate assets, will be split evenly when mom dies. But oh no, they won’t. Just the house and the stuff in it will be split evenly. It’s worth $150,000. The non-probate assets will go completely to daughter. Those assets are worth $500,000! Well, what can daughter do? Two things: One, she can receive the assets and make gifts to her two brothers and suffer transfer tax consequences (think “gift tax” and IRS form 709). Two, she can disclaim the asset (if she officially and correctly does so fast enough) and then the assets become probate assets and then the will can control. Do you know how to “disclaim” properly?
You see, planning means taking care of these things now, so that later it truly is simple for the survivors. No guessing, no wondering, no need to fight. Planning promotes harmony.
Stay tuned for how to make your non-probate assets probate assets, and vice-versa!
{ 2 comments… read them below or add one }
Good info. I have for years made a Financial statement once a year sometimes every six months. It helps me know what to do.
Years ago, after my husband’s death, I changed accounts to read POD/TOD, JTWROS, beneficiary(on insurance).
Thanks for info. I tell people to do this, and they say oh I don’t have anything. I tell them to list it and they will find out that they do…also, they need to correctly style accounts so money goes to the person/persons they want it to go to. I hope people will read your website and see that they do need to do something. I let the end of the Bush tax law slip up on me.
Mary, thanks so much for your comments. Seen my latest blog? What will Congress do with the transfer taxes?