How Property Transfers Upon Death
Many articles have been written on the benefits of a will in an effort to preach "be prepared," but how many people understand how a will works and how property is transferred? Probably fewer than we'd like to admit.
Most people want to transfer property upon their death in the most efficient way possible - without time, hassle, and expense. Many are surprised to learn that the quickest and least expensive way to transfer property is not through a will. You probably still need a will, but it's helpful to understand how to get property transferred without one.
Say Bob wants to leave one-third of his assets to each of his three daughters. He's an executive and has accumulated most of his money in a 401(k), where he listed his oldest daughter as beneficiary. His will designates the oldest daughter will settle his estate, so he lists her as beneficiary, assuming she will distribute equal portions to the other daughters. But at his death, the oldest daughter gets all of the 401(k) instead of one-third, and she may risk adverse tax consequences if she "shares" with the other sisters. If Bob understood more about how to transfer property, he likely would not have created this mess.
Jointly held property is one of the first types of property to be transferred upon death. If a name is added to your property deeds, bank accounts or other assets, you convert that property to a joint ownership position. Legally speaking, you have made a gift of a portion of your property to someone else. The advantage is that the others left on the account need only remove the deceased person's name by submitting a death certificate. No cost. Little delay. The big disadvantage is that joint owners have immediate access to your assets, so withdrawals can be made at any time without your permission. Also, if that person on your accounts were to be involved in any type of legal action (including divorce), your funds may be at risk. So, although easy and cheap, there are some drawbacks.
Another way to transfer property before a will takes effect is by using a beneficiary designation. These are available only on certain types of accounts: annuities, Transfer on Death (TOD) accounts, IRAs and other retirement accounts. The beneficiary tells the holder of the account whom to transfer the account to upon the holder's death.
Only after joint property and beneficiary property is settled does a will come into play. If you're not using a trust, most of the other property will likely be solely in your name. The will directs the court how to divide what's left in a process called probate. In Alabama, probate takes a minimum of 6 months; that gives time for creditors to "make claim" against your estate. Once that time passes and all debts are paid, the estate can be settled and property can be transferred according to the terms of the will.
When we can no longer bless our families with our lives, we can at least make the transition easier for them after we're gone. Understanding the basics is a good start.
Most people want to transfer property upon their death in the most efficient way possible - without time, hassle, and expense. Many are surprised to learn that the quickest and least expensive way to transfer property is not through a will. You probably still need a will, but it's helpful to understand how to get property transferred without one.
Say Bob wants to leave one-third of his assets to each of his three daughters. He's an executive and has accumulated most of his money in a 401(k), where he listed his oldest daughter as beneficiary. His will designates the oldest daughter will settle his estate, so he lists her as beneficiary, assuming she will distribute equal portions to the other daughters. But at his death, the oldest daughter gets all of the 401(k) instead of one-third, and she may risk adverse tax consequences if she "shares" with the other sisters. If Bob understood more about how to transfer property, he likely would not have created this mess.
Jointly held property is one of the first types of property to be transferred upon death. If a name is added to your property deeds, bank accounts or other assets, you convert that property to a joint ownership position. Legally speaking, you have made a gift of a portion of your property to someone else. The advantage is that the others left on the account need only remove the deceased person's name by submitting a death certificate. No cost. Little delay. The big disadvantage is that joint owners have immediate access to your assets, so withdrawals can be made at any time without your permission. Also, if that person on your accounts were to be involved in any type of legal action (including divorce), your funds may be at risk. So, although easy and cheap, there are some drawbacks.
Another way to transfer property before a will takes effect is by using a beneficiary designation. These are available only on certain types of accounts: annuities, Transfer on Death (TOD) accounts, IRAs and other retirement accounts. The beneficiary tells the holder of the account whom to transfer the account to upon the holder's death.
Only after joint property and beneficiary property is settled does a will come into play. If you're not using a trust, most of the other property will likely be solely in your name. The will directs the court how to divide what's left in a process called probate. In Alabama, probate takes a minimum of 6 months; that gives time for creditors to "make claim" against your estate. Once that time passes and all debts are paid, the estate can be settled and property can be transferred according to the terms of the will.
When we can no longer bless our families with our lives, we can at least make the transition easier for them after we're gone. Understanding the basics is a good start.
posted by Shari Burnum @ 1:48 PM
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