This question from clients is often accompanied by the question, “Do I need a will?” In order to answer these questions it’s necessary to discuss the various ways you can plan how your property will be distributed when you pass away. You can:
1. Specify your beneficiaries in a last will and testament
2. Designate beneficiaries in life insurance policies and financial accounts
3. Hold property in trust with designated beneficiaries
4. Own property jointly with rights of survivorship, with the property going to the joint owner upon your death
JOINT OWNERSHIP WITH RIGHTS OF SURVIVORSHIP
Many married couples own a home jointly with rights of survivorship, which in New York State is called a Tenancy by the Entirety. Upon the first spouse’s death, the home passes to the surviving spouse by operation of law. There is no need to probate a will or bring an administration proceeding. Likewise, joint bank accounts and security accounts will pass to the surviving spouse.
As with joint accounts, proceeds of life insurance policies will pass directly to the designated beneficiaries with no need to bring a probate or administration proceeding. The same holds true for IRAs and securities accounts in which you have designated beneficiaries.
SOLE OWNERSHIP WITHOUT A LAST WILL AND TESTAMENT
What happens to property you may own upon your death which you owned solely in your own name without designated beneficiaries? Absent a last will and testament, New York State law directs that such property passes to your heirs or what the laws calls your intestate distributees. Such heirs could be your spouse, children, parents, siblings, nieces and nephews. Generally an administration proceeding must be commenced in Surrogates Court in which an administrator is appointed who has the authority to collect property and distribute it to the heirs.
SOLE OWNERSHIP WITH A LAST WILL AND TESTAMENT
Most people are familiar with the concept of having a last will and testament in which you designate the beneficiaries who will receive your property upon your demise. What many people don’t realize is that a will only directs who will receive property not otherwise disposed of by virtue of joint ownership or having designated beneficiaries. Such property is said to pass outside of the probate estate and is not subject to your will. If there are no assets in your probate estate, it is not necessary to probate your will. This is often the case when the first spouse of a married couple passes away. If there are assets in your probate estate, your will must be probated after which your executor can collect and distribute your estate.
LIVING OR INTER VIVOS REVOCABLE TRUST
In order to avoid probate people often establish living trusts, or, in legal terms, Revocable Inter Vivos Trusts. Legal title to your property must be transferred to the trust. You are the trustee of your trust and have complete control over trust assets. Upon your death, your successor trustee, which you have appointed in the trust agreement, distributes trust property to beneficiaries you designated. If all of your property had been transferred to the trust, there will be no probate assets and no need to probate a will or bring an administration proceeding. Is it then always preferable to have a living trust instead of a will? Not necessarily. Setting up a living trust is often more expensive and more involved that signing a will. However, in cases where probate of a will may be problematic, for example, where you have disinherited an heir, thus inviting a probate contest, or where your heirs are not easily ascertainable, in which case a costly and lengthy search for missing heirs would be required by the court; a living trust may be a better choice than a will.
As you can see, due to the many forms in which you may own your assets, it is advisable to seek professional advice in planning the final distribution of your estate.