Everyone wants to take care of their loved ones to the greatest extent possible in the event of their own death. However, ensuring that your estate goes to your beneficiaries in the manner you intended is not as simple as it may seem. This process is known as “estate planning.” There are a number of strategies and tools in the estate planning process and no “one size fits all” approach. The following is a brief discussion of the various means by which the individual assets which make up your estate may transfer to your beneficiaries.
1. Joint Ownership – When an asset is titled in two or more individuals’ names with “rights of survivorship,” or in the case of spouses “survivorship marital property,” full ownership of the assets transfers to the surviving owner(s) in the one owner’s death. The surviving owner(s) need only provided the appropriate documentation to the financial institution, or in the case of real estate, to the Register of Deeds, and title to the asset will be changed to reflect only the surviving owner.
2. Beneficiary Designations – These are most commonly found on Life Insurance, IRAs, 401k’s, 403b’s, and Annuities. The account or policy you own is governed by a contract between you and whichever financial institution administers or manages the asset. As part of that contract, you have the ability to direct to whom the assets should be distributed in the event of your death. Again, upon the owner’s death, the beneficiaries need only submit the appropriate documentation in order to claim the proceeds. Most beneficiary designations allow you to name not only a primary beneficiary, but also a secondary or contingent one, as well.
3. Payable on Death /Transfer on Death Designations- A Payable on Death designation, or P.O.D., is essentially a beneficiary designation. It allows you to add a beneficiary to accounts such as savings, CD’s, and money markets. Upon the owner’s death, after the appropriate documentation has been submitted, the financial institution will pay the balance in account to the beneficiary and close out the account. A Transfer on Death designation, or T.O.D., is a beneficiary designation that may be placed on an investment account holding securities. It functions in a slightly different manner than a P.O.D. Upon the original owner’s death, the financial institution will open new accounts for the beneficiaries listed on the T.O.D. designation, and the securities held in the deceased’s account will be transferred equally between these new accounts. Each beneficiary then has the option to either maintain the new account, or liquidate the securities, take the proceeds and close out the new account.
4. Transfer on Death Deed- This is a new format for transferring title to real estate to beneficiaries. This format allows the owner of the real estate to add a Transfer on Death designation to the deed. Again, the beneficiary listed on such designation has no ownership interest or control over the property until the owner dies, and the owner retains the right to change or remove the beneficiary at will. Upon the owner’s death, however, the named beneficiary need only record documentation with the Register of Deeds verifying that the owner has died in order for the title to reflect the beneficiary as the new owner.
5. Revocable Trust- A revocable trust is a legal entity created by an individual, known as the “Grantor” or “Settlor” of the trust. This “trust agreement” spells out how the Grantor’s assets are to be distributed in the event that the Grantor dies. In Wisconsin, a couple can also create a revocable trust together. Ownership, or title, of the Grantor’s assets is transferred from the Grantor to the trust. The Grantor, however, does not lose any control over those assets because although the trust owns the assets, the Grantor owns the trust, and everything in it. The Grantor has the right to change any part of, or completely revoke, the trust. The trust agreement also names a “Trustee,” whose job it is to manage the assets. The Grantor usually acts as the Trustee for as long as he or she is alive and able. When the Grantor dies, a “Successor Trustee” takes over. The Successor Trustee’s duty is to pay the Grantor’s final debts and expenses, and then to distribute the Grantor’s property to the beneficiaries that were listed in the trust agreement. Once this is done, the trust has completed it purpose, and is dissolved.
6. Transfer by Affidavit- If none of the above means are available to transfer ownership of the asset(s) to the beneficiary, and the total value of the asset(s) is less that $50,000, then ownership can be transferred using the Transfer by Affidavit format. The Affidavit details the type of asset and its value, as well as identifies the appropriate beneficiary. Once completed, this form is presented to the financial institution holding the funds, which then turns the funds over to the beneficiary.
7. Probate- If none of the above means can be used to transfer ownership of an asset to your beneficiaries after your death, then that asset will have to go through probate. Probate is the court-supervised process of “settling your affairs.” The Probate Court appoints a Personal Representative whose duty it is to pay the decedent’s final debts and taxes, and then distribute the remaining assets to the beneficiaries. Once the final distribution is made to the beneficiaries, the Personal Representative is discharged by the Court.
Again, this was intended to be only a brief explanation of the various means by which assets may be transferred upon an owner’s death. Each of these strategies, of course, has both significant advantages and disadvantages. A well-constructed estate plan may incorporate and coordinate several of these strategies. The best plan for you can be determined by meeting with an experienced estate planning attorney. Remember, everyone’s situation is unique, and there is no “one size fits all.”
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