Most people think of an estate plan as a singular document. On the surface, it might seem simple. However, there are many nuances to directing the disposition of assets upon death that can become difficult to navigate. The reality is that most people have multiple estate plans that control various assets depending upon how they are titled and whether or not beneficiaries are designated. It is important to understand how these different estate plans work.
Assets that are either titled to a trust or name a trust as a beneficiary upon death are controlled by the terms of the trust. The inverse is also true: assets that are not titled to a trust or that do not name a trust as the beneficiary upon death are not controlled by the trust. As a result, it is important that all assets that are intended to be controlled by a particular trust are funded to the trust.
While it is common to have one trust that controls all assets, there are circumstances in which a person might have multiple trusts controlling different sets of assets due to for a variety of reasons including tax planning strategies, asset protection purposes, or simply having different wishes with regard to different assets.
Trusts provide for the management and control of its assets while the trust-maker is living and has mental capacity, in the event of the trust-maker’s mental incapacity, and upon the trust-maker’s death.
The terms of a will control a person’s assets that were titled to that person in his/her individual capacity at the time of death. Wills do not control assets that are held in trust, held in joint tenancy, or that name designated beneficiaries.
Wills only come into effect when the will-maker dies. While the will-maker is living – even during a will-maker’s incapacity – wills have no effect.
Joint tenancy is the most common form for two or more individuals jointly holding title to an asset such as a bank account, an investment account, or real property. Joint tenants are always equal owners. Furthermore, joint tenancy features a “right of survivorship” meaning that upon the death of one joint tenant, the remaining joint tenants automatically inherit the deceased joint tenant’s share equally by operation of law. This is true regardless of whether there is a contrary provision in the deceased joint tenant’s will or trust.
Pension Plan Provisions
Many traditional “defined benefit” retirement plans feature their own polices in terms of who inherits the pension upon death. Often there is an automatic right for a surviving spouse Sometimes children are automatically included for a type of benefit as well.
“Defined contribution” retirement plans such as IRA’s, 401(k) plans, and 403(b) plans as well as life insurance policies and annuities allow the owners to designate beneficiaries to receive the assets upon death. The beneficiary designation form supersedes any contrary provision regarding the disposition of the asset that might be expressed in the owner’s will or trust.
An asset that is not titled to a trust, is not controlled by a will, is not held in joint tenancy, and does not have a beneficiary designated will be controlled by intestacy. “Intestacy” refers to a lack of an applicable estate plan. State laws will dictate how such assets will be distributed upon the owner’s death. State laws typically mandate that the decedent’s closest blood relatives will inherit.
Because an asset can be controlled in so many different ways, it is important to review how each asset is titled and to determine how title will dictate the distribution of the asset upon death. All such estate plans – including beneficiary designation forms – should be kept together to ensure that each asset upon death is distributed efficiently and correctly.
KRASA LAW, Inc. is located at 704-D Forest Avenue, Pacific Grove, California 93950 and Kyle may be reached at 831-920-0205.
Disclaimer: This article is for general information only. Reading this article does not establish an attorney-client relationship. Before acting on any of the information presented in this article, you should consult a competent attorney who is licensed to practice law in your community.