September 11, 2015
Have you ever gone into a bank or financial institution and opened an account? Remember all of the paperwork you had to sign to open that account? Almost always, that paperwork includes making decisions regarding ownership of the account and beneficiary designations. These decisions can have a material and significant impact upon your estate plan and could unintentionally change your estate plan and the federal estate taxation of it. With this I thought it would be a good time to review some ownership concepts and the distinction between probate and non-probate assets.
Bank accounts and brokerage accounts are assets governed by an agreement between you and the institution. If the agreement provides that you and your spouse are the owner of the account then that agreement has created an asset which is a joint tenancy between you and your spouse (i.e. you each own 50% of the account). If you add your daughter and/or son to the account to help you pay your bills then they may have become a co-owner of that account regardless of your intent. If you mark the box on the agreement that this account has rights of survivorship then the account is paid to named surviving owner(s) of that account. Again, these transfers occur irrespective of what you may intend under your Will or what you and your estate planning professional have designed to minimize federal estate taxes or equalize distribution of assets between beneficiaries.
Life Insurance contracts, annuity contracts, IRAs, 401(k)s and property held in trust generally operate the same way. They are agreements between you and the institution/trustee.
These types of agreements and the assets controlled by them are normally classified as non-probate assets and are not governed by your Will. Probate assets on the other hand are governed by the terms of your Will. Examples of probate assets are real estate held in your name and personal property owned by you.
You can make assets that might otherwise be non-probate assets into probate assets sometimes by designating your estate as the beneficiary of the account/contract.
As part of the estate planning process, you should be sure to take into account the distinction between probate and non-probate assets in planning for the disposition of your own property or in handling the disposition of another's assets.
Please feel free to contact us if you have further questions. We can help you review these decisions and make recommendations to ensure that your assets are transferred as you intend.