When you die, who will get your assets?
There are several ways that property is distributed when a person dies. The distribution of the property that you own at your death (your estate) will depend on several factors, including how you owned it, what legal documents you have in place, and what your state’s intestacy laws are if you haven’t set up an estate plan. Here are five ways that your property would be distributed when you die as a resident of New York State.
1. Property You Own Alone When You Don’t Have a Will
When you die without a will, then your property (a bank account, stock, real property, etc.) that is in your own name alone will be distributed according to state law.
State law will designate who will administer your estate. An administrator will be appointed by the Court and state law will determine who your estate is distributed to. There is an order of priority and specific rules regarding who can be your estate’s administrator and who will inherit your property.
Example: Peter owns a co-op and has checking and investment accounts when he dies as a resident of New York. Peter does not have a valid will. Peter’s wife Kate has priority to petition the court to be appointed administrator and even though Peter would have wanted all his assets to go to Kate, under New York State law, his assets are divided between Kate and his children in accordance and in proportion to New York State law.
You can see how this can get complicated if Peter’s children were from a prior marriage and don’t get along with Kate. Other problems could arise if his children are minors, or a child has creditor issues, or if a child has special needs or is on government benefits that would be endangered by receipt of the inheritance.
2. Property You Own Alone When You Have a Will
When you die and have prepared a will, then the property that you own (a bank account, stock, real property, etc.) that is in your own name alone will be administered and distributed according to the provisions of your will.
Example: Jane owns her house and has a checking account in her name alone when she dies. She has a valid will that named her brother Steve as executor and directs that her estate be distributed evenly between her best friend Stacey and her favorite charity named in the will. Steve will have to petition the court to admit her will to probate, where once the court approves of the will, it gives permission to Steve to collect Jane’s assets (house and checking account), pay any debts, taxes, and estate expenses (such as court fees, legal fees, and executor commissions), and then distribute the balance of the estate to the named beneficiaries, Stacey and the named charity.
3. Beneficiary Designations
When you designate a beneficiary on something that you own, the title and ownership of that property will automatically transfer to the named beneficiary without the need for probate, which can avoid lengthy delays, expensive fees, or court intervention. A beneficiary designation supersedes a will and other laws governing administration without a will. There are several ways to designate a beneficiary and not all types of property allow for beneficiary designations.
You cannot designate a beneficiary on your real property, such as your house or other real estate.
You can designate a beneficiary (or beneficiaries) on your life insurance policies, annuities, retirement accounts, and many other types of bank and financial accounts.
There are several different terms that are associated with beneficiary designations. Some include:
- POD = Payable on Death
- TOD = Transfer on Death
- ITF = In Trust For
Example: If a bank account is titled “Mary Smith ITF Joanne Smith” that means that Mary is the 100% owner of the account and free to do with it as she pleases during her lifetime. When she dies, it will belong to Joanne Smith without the need for any probate or court process. She becomes the 100% owner of the account with minimal paperwork and no need for a court process or attorney assistance. (Even if her will names someone other than Joanne as beneficiary, the beneficiary designation is what governs, and Joanne gets the account.)
Designating beneficiaries is an excellent tool to retain complete flexibility and control during lifetime, while making it very easy and economical for your loved ones to inherit your assets after your lifetime.
4. Property Owned with Another Person as Joint Tenants (with Rights of Survivorship)
If you have property (a bank account, stock, real property, etc.) that you own together with at least one other person and the account is titled as “joint tenants” or as husband and wife, then when one of the owners dies (the “decedent”), the surviving owner or owners automatically become the owner of the decedent’s share. The will of the deceased owner is irrelevant and the surviving owner becomes the 100% owner. If there is a beneficiary designation on the asset, the beneficiary would only get ownership after the death of the survivor, and generally, the survivor can change a beneficiary during his or her lifetime.
Example: Paula and Patrick have an investment account titled “PAULA PARKS AND PATRICK PARKS JTROS” (Joint Tenants with Rights of Survivorship). When Paula dies, Patrick automatically becomes sole owner of the account.
If the account had a beneficiary, the beneficiary would only get ownership after Patrick’s lifetime if Patrick didn’t change or remove the designation during his lifetime.
Example: Paula and Patrick, a married couple, used their combined savings to buy a house. The deed was titled “PATRICK PARKS AND PAULA PARKS, as husband and wife.”
Paula has two children from a prior marriage. When Paula dies, Patrick automatically becomes sole owner of 100% of the house. Paula’s kids do not inherit the house, (even if her will left everything to them).
5. Property Owned in a Trust
If property is owned in your trust, meaning, you established a trust during your lifetime and transferred the title of what you own from your individual name to your trust, then when you die, the terms of the trust will govern who gets your property and who is in charge of administering the assets in the trust. A trust has many diverse purposes, but one feature that is common in all trusts is that property held in trust avoids the need for probate (court intervention) when you die. A will does not apply to any assets that are funded in the trust. And a trust will only govern the assets that it has been funded with. Generally, a trust requires more legal work during your lifetime (setting it up, transferring assets to the trust), but makes it easier for your beneficiaries after your lifetime.
Example: Stuart owns a condominium apartment, an investment account and a checking account. He creates a will and a trust. He transfers his condo into his trust. He leaves his investment account and checking account out of the trust, but has a beneficiary designation on his investment account.
When Stuart dies, the terms of his trust will govern distribution of his apartment. The trustee that he has named in his trust can sell the condo or distribute it according to the terms of the trust. His named beneficiary on the investment account automatically get the money in the investment account. His checking account has no joint owner and no beneficiary designation, so his executor will have to go through the court probate process to access the checking account funds and distribute the money according to the terms of Stuart’s will.
This list is not exhaustive. There are additional ways that your property can pass to your heirs, which might be appropriate in your specific situation. There are many important factors that should be considered when titling your assets, designating beneficiaries on accounts, and preparing a will and a trust, if appropriate. It is important to determine what is best for your individual needs. The first step you should take is consulting with an estate planning attorney to become educated and informed about what is right for you. Contact our firm today.