JOINT OWNERSHIP AND SURVIVOR RIGHTS

Assets owned jointly in a form known as “joint tenancy with rights of survivorship,” pass by operation of law to the surviving joint owner(s).

Example: is a brokerage account titled in the name of “Mary Barnes and John Barnes as JTWROS.” If John dies, the account automatically belongs to Mary. Even though ownership transfers automatically, Mary would be well advised to remove John’s name and social security number from the account at his death. This can be accomplished by presenting the brokerage house with a copy of John’s death certificate.

Real estate owned jointly with your spouse is a form of joint ownership called “tenancy by the entirety” in many states. At your spouse’s death, ownership of the real estate, like your principal residence or vacation home, passes automatically to you without need of any court procedure.

“Tenancy in common” is a form of joint ownership that does not automatically pass the decedent’s share at death. Instead, the share of the deceased owner must be “probated” (unless it is owned in trust) in order to transfer title to his or her heirs. For instance, if Mr. A, Mr. B and Mr. C own a piece of real estate together as “tenants in common,” and Mr. A dies, his one-third ownership interest does not pass to Mr. B and Mr. C. Instead, the beneficiaries named in Mr. A’s Will become the new owners. If Mr. A did not have a Will, his share will pass according to the laws of intestacy.

Even though jointly owned assets pass at death with relative ease, it would be incorrect to assume that such ownership constitutes sound estate planning. In reality, the automatic transfer at death and the lifetime rights accorded to joint owners make joint ownership a poor estate planning tool. See “Joint Ownership As a Trust Substitute” in Chapter Nine.

ASSETS PASSING BY BENEFICIARY DESIGNATION Some assets allow the owner to name a beneficiary. Such assets pass at death to the individuals (or trust) named in the “beneficiary designation.” This type of designation is usually found on insurance policies, retirement plans, IRAs, 401(k)s and annuities. Assets naming a beneficiary pass automatically without resort to a probate court proceeding.

Pay-on-death (“POD”) and transfer on death (“TOD”) accounts are another form of beneficiary designation. A number of states permit POD and TOD designations on individual securities, bank, and brokerage accounts. POD and TOD designations direct the financial institution to transfer the security or account to the named designee upon the death of the account owner.

ASSETS PASSING THROUGH PROBATE

Assets owned by your late spouse that were not held with a joint tenant, did not name a beneficiary, and were not owned in trust, will comprise your late spouse’s probate estate. There are two major types of probate: formal and informal. With formal probate, the court supervises each step of the probate process. The judge must approve each step of the process including the sale and distribution of all estate assets. With informal probate, the court does not supervise the fiduciary. Instead, the court intervenes only if an interested party (i.e. beneficiary) complains about the fiduciary’s actions.

Whether you choose formal or informal probate will depend on a number of factors including the number of creditors making claim to the estate and your relationship with the other heirs. Formal probate is more appropriate where you anticipate conflict. With the court approving each step of the process, there is little room for disgruntled creditors or heirs to claim you acted inappropriately.

Formal probate can be significantly more expensive than informal probate, since numerous hearings must be held before the judge. Your attorney must attend each hearing. All heirs must receive notice of the time and date of each hearing, giving them an opportunity to object to your actions. Since most attorneys charge an hourly rate for their services, the more time your attorney spends in court, the more expensive the process.

Routine estates without expected challenges can be handled informally. Informal probate tends to be cheaper and faster, and all things being equal is preferred. If you choose informal probate and a conflict arises, you can elect to resolve a particular issue with a formal hearing. In fact, the preferred approach is to administer the estate informally, with final distributions approved by a formal hearing. Final court approval validates all of the fiduciary’s actions, and prevents later challenges by disgruntled heirs.

ASSETS OWNED IN TRUST

Assets owned in trust do not require a probate proceeding. Instead, upon the grantor’s death, the successor trustee takes over the management of trust assets. As a fiduciary, the successor trustee has a legal obligation to prudently manage trust property and to strictly implement the terms of the trust. Depending on its terms, the trust may operate for only the time it takes to value, liquidate and distribute assets, or it may last for many years, with the successor trustee managing assets for minor or disabled beneficiaries.

APPLICABLE LAW

The laws of the state of which your late spouse died a resident govern the administration of his probate and trust estate. The probate court of the county of his residence has jurisdiction to handle estate and trust matters. For purposes of this chapter, we have assumed that your state has adopted the Uniform Probate Code (“UPC”). To date, approximately 18 states have adopted some variation of the UPC. Even if your state has not adopted the UPC, the concepts that follow nonetheless apply to you with minor modification.

ONGOING ADMINISTRATION

The balance of this chapter discusses the role of the fiduciary in administering each step of the probate estate or trust administration process. Generally, administration consists of five (5) separate steps. Each of the following steps compares your responsibility in formal probate, informal probate, and finally, trust administration:

1. Appointment of Fiduciary;
2. Admission of the Will;
3. Asset Inventory and Administration;
4. Dealing with Creditors;
5. Making Final Distributions.

To promote smooth administration, you should go above and beyond the strict legal requirements outlined below. The death of a loved one is extremely stressful on the entire family, often breathing new life into old conflicts and jealousies. This is especially true if there are beneficiaries who are not your biological children.

They will undoubtedly wonder “What’s she doing with dad’s money?” One way to lessen these feelings is to be as open and honest as possible.

Upon request, beneficiaries are entitled to a copy of your late spouse’s Will and trust. Rather than make them ask, consider providing them with a copy of relevant documents as soon as possible.

Another peacekeeping strategy is to speak through your attorney. Beneficiaries may feel more comfortable asking questions like “What do I get, and when?” to a third party. It may also be easier for them to hear bad new such as “You don’t get anything until your step-mother’s death” from someone other than you.

The term “estate” is often used loosely.

It may refer to a probate estate, a trust estate, or a taxable estate. In general usage, the term “estate” means all that a person owns, whether tangible, intangible, personal, or real property.

A “probate estate” consists of those assets that need to go through probate to transfer legal title from the decedent to the new owner.

A “trust estate” refers to assets owned in trust.

The phrase “taxable estate” means the assets that the IRS includes when computing the estate tax.

When the term “estate” is used in this chapter without further explanation, you should infer its meaning from the context in which it is used.