Transfer of Assets at Death Handout - Penn Mutual Life

Transfer of Assets at Death
One of the basic goals of estate planning is making sure your assets are transferred to your heirs
according to your wishes after death. Without proper estate planning, the people whom you most
want to benefit could be left out in the cold – even if you’ve made your wishes clear during your
lifetime.
How do you make sure your assets are passed on according to your wishes?
• You have to understand how state and federal law will treat your assets at the time of your
death.
• Based on that understanding, you have to develop a plan.
There are several ways that property is transferred at the time of death.
Transfer By Operation of Law
The most common example of operation of law is when two or more people share ownership of
an asset. When one of them dies, ownership rights pass to the survivor(s).
Advantages
• No Probate Administration: as long as there is at least one surviving owner, there is no need for
a lengthy and potentially costly probate process.
Disadvantages
• The potential for increased federal and state death taxes as well as capital gains taxes.
• Lack of individual control of the asset during lifetime.
• Inflexibility. When one owner dies, the surviving owner(s) automatically own the property
outright, regardless of any provisions which may have been made in wills, trusts, or other
documents.
Because jointly owned assets are passed on to survivors under operation of law – regardless of any
other wishes you may have – make sure you resolve any ownership issues during your lifetime.
Transfer By Operation of Contract
Owners of property can make a contract or agreement during their lifetime to ensure that assets
are transferred to someone else at the time of their death. The most common examples of
operation of contract include:
• Beneficiary Designations: Life insurance and annuity policies, employee benefit and retirement
plans, certain U.S. Savings Bonds, and some other types of financial accounts permit an
individual to designate who will receive funds in the event of death.
• Inter Vivos (Living) Trusts: A contractual arrangement where property is transferred to a
trustee who manages and distributes it for the beneficiary(s) of the trust. If property is
transferred to the trust during the owner’s lifetime, the trust agreement can specify who will
receive the property at death.
But remember: at death, jointly owned property will still pass to the surviving owner, regardless of
any contract or agreement.
Transfer By Probate Administration
When a property owner dies and his/her property is not transferred under operation of law or
operation of contract, it must be transferred by the process of probate administration. Generally,
probate proceedings are conducted in the state where the property owner resided at the time of
death, as well as in all other states in which he/she owned real estate.
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Purposes of Probate Administration
• To prove that a Will is authentic, valid, and effective under state law.
• To assure that all debts, expenses, and other liabilities are paid.
• To transfer property to those entitled to it under the terms of a Will, or if there is no Will, to
those entitled to it under state law.
Advantages of Probate Administration
• Estate administration is handled by a court, ensuring that any problems, disputes, or other
matters that might arise are resolved impartially.
• Any rights that creditors may have to estate assets are terminated by probate proceedings,
preventing them from asserting claims against the property at a later date.
• Inherited property receives a "stepped up" cost basis for tax purposes so that if it is later sold,
capital gains taxes will be reduced or eliminated. Also, with a properly drafted Will, federal and
state death taxes can be minimized.
• An official record documenting the ownership of property is created, eliminating the need to
prove ownership in the future.
Disadvantages of Probate Administration
• Probate administration can be complicated, costly and confusing.
• Legal fees, court costs, executor’s fees, and other expenses of estate settlement may be
substantial.
• The final distribution of estate assets can be delayed for months or even years.
• Dealing with money and family issues in this way can be very stressful.
• Probate is generally a matter of public record resulting in a lack of privacy. Others may have
access to your personal and financial matters.
Each of the above methods of transferring property at death has its advantages and disadvantages. But remember,
the various methods are mutually exclusive - if property is transferred under one method, then the other
methods do not operate. For example, property that is jointly owned will automatically pass to the surviving
owner(s) regardless of any provisions in a will or trust agreement. Similarly, the designated beneficiary of a life
insurance policy will receive the proceeds when the insured dies, regardless of the terms of the insured’s will.
That’s why it is extremely important to examine the ownership of assets, beneficiary designations, and the terms
of any Wills or Trusts Agreements, to assure that all elements of an estate plan are properly coordinated with
one another and that property and assets will be transferred at death as intended.
Will
Property
Transferred
Based on
Terms of Will
Probate Assets
No Will
Property
Transferred
Under State
Intestacy Law
Transfer at Death
Non-Probate Assets
Contract
Assets
Property
Transferred
to Designated
Beneficiary(s)
Joint
Ownership
Property
Transferred
to Surviving
Owner(s)
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