This article provides a general overview concerning how assets pass at the death of the owner. As highlighted below, an effective estate plan requires careful attention to how one’s assets are owned during lifetime and how such lifetime ownership will impact their access and distribution upon one’s death.

Probate Assets

A “probate asset” is an asset owned solely by a decedent that does not have a valid beneficiary designation or pass to another owner through joint ownership or another means. A probate asset must “pass through probate,” explained below, and cannot be accessed until the “Personal Representative” of the estate has been appointed. Note that designating one’s “estate” (that is, one’s probate estate) as the beneficiary of an asset will cause that asset to pass through probate.

“Probate” is the process during which a judge of the Probate and Family Court “allows” (approves of) the decedent’s will, if the decedent leaves a will, and appoints a Personal Representative to administer the decedent’s probate estate. In general, if the decedent does not leave a valid will, state law provides that the estate will pass to certain family members (if there are surviving relatives) pursuant to the intestacy statute. In Massachusetts, M.G.L. c. 190B§ 2-708 is the relevant law. In addition, if the decedent does not leave a valid will, certain individuals have priority to serve as Personal Representative.

Prior to the appointment of the Personal Representative, probate assets are essentially frozen – no one has the authority to access them for any purpose. Once appointed, however, the Personal Representative has the authority to collect the probate assets of the estate, pay the decedent’s just debts and expenses of administration, and distribute the assets in accordance with the terms of the Will or in accordance with the relevant intestacy statute.

Probate proceedings are generally public, subject to delay, require payment of filing fees, and typically require the assistance of an attorney. It is generally perceived as advantageous to avoid probate. That said, a carefully crafted estate plan must consider the need for the availability of assets with which the Personal Representative can pay the decedent’s debts, estate administration expenses, and applicable taxes, including estate taxes. In other words, a probate estate may be necessary to ensure that there are sufficient funds available to pay the aforementioned debts, expenses and taxes.

Jointly Held Assets

An asset held in the name of the decedent jointly with one or more other owners will generally pass “by operation of law” to the surviving owner. Following the death of one joint owner, the surviving owner typically retains immediate access to such asset. That said, the surviving owner may need to take steps to confirm or ensure that the asset (for example, a bank account) is in his or her name, under his or her Social Security number.

Assets with a Beneficiary Designation

An asset with a beneficiary designation on file with the financial institution, such as a retirement account or life insurance policy, is generally considered a non-probate asset and will pass directly to the designated beneficiary. Typically, the designated beneficiary will prepare and submit the necessary paperwork provided by the financial institution, and will thereafter have ready access to such asset.

Assets Held in Trust

An asset held in a decedent’s revocable (inter vivos or “living”) trust will generally be held, administered and thereafter distributed pursuant to the explicit terms of such trust. Trust ownership ensures privacy, and ensures that assets can be quickly accessed by a co-trustee or successor trustee.

Examples of Ownership of Specific Types of Assets and How They Pass at Death

Real Estate

In a sole ownership, one person holds title individually. In theory, sole ownership provides simplicity and flexibility. However, upon the death of the sole owner the property is subject to the probate process, which can be time-consuming and expensive as described above.

A “tenancy by the entirety” is a form of joint tenancy for a married couple, where each spouse owns an undivided, equal share of the real estate. When one spouse dies, the real estate automatically passes to the surviving spouse. At the death of the surviving spouse, however, the property will be subject to probate if it is still owned solely by the surviving spouse.

Joint tenancy is a method by which two or more persons (“tenants”) hold title to real estate together and each joint tenant owns an equal share of the real estate. The joint tenants have equal rights to the income and use of the property, but generally must pay their proportionate share of the expenses. The primary advantage of joint tenancy is the right of survivorship, meaning that upon the death of one joint tenant that share passes automatically to the surviving joint tenant(s).

Holding title as “tenants in common” is an arrangement by which two or more tenants own an undivided but not necessarily equal share of the property. That is, the property may be split into different percentages among the owners. When property is owned as a tenant in common, there is no automatic right of survivorship. At the death of one tenant, his or her share must go through the probate process to be distributed pursuant to his or her will, or pursuant to the intestate statute referenced above.

The delays, expense and publicity associated with the probate process, discussed above, can be avoided by taking title to real estate via a properly executed trust. Property held in trust can generally be sold or distributed by the trustee without the need for probate proceedings. An estate planning attorney can provide advice concerning the advantages and disadvantages of transferring one’s real estate to a trust. Finally, there are additional ways to hold real estate that are beyond the scope of this article.

Bank Accounts, Stocks, Bonds and Brokerage Accounts

Bank accounts, stocks, bonds and brokerage accounts can generally be held individually, as joint tenants with rights of survivorship, in a trust, or individually with a “transfer on death” designation. “Transfer on death” (often called “TOD”) accounts are sometimes used for bank accounts and investment accounts such as mutual funds, stocks and bonds held in a brokerage account. If there

is a valid transfer on death designation, at the death of the account owner the assets are transferred directly to the named beneficiary or beneficiaries with only a modest amount of paperwork required rather than having to pass through probate.

It is important to periodically review TOD beneficiary forms to be sure they are up to date. Major life events such as a remarriage, divorce, birth of a child or grandchild, a beneficiary’s death, or a change in a beneficiary’s financial circumstances are a good time for a review to be sure that beneficiary designations reflect one’s current preferences and goals. Also, as described above, careful estate planning must evaluate whether such direct transfers to a beneficiary (or beneficiaries) will result in a lack of assets in one’s estate with which the Personal Representative can pay debts and expenses.

Life Insurance Proceeds

Life insurance policy proceeds are generally paid to the named beneficiary or beneficiaries, unless a beneficiary has predeceased the insured individual. The terms of the specific policy may dictate to whom the proceeds pass if a named beneficiary has predeceased the insured and there are no further instructions. In general, if there is no valid beneficiary, the proceeds will be paid to the estate of the named insured and will become a probate asset.

Retirement Accounts and Annuities

Retirement accounts include 401(K), IRA, Roth IRA, Roth 401(K), Simple IRA, SEP IRA accounts. Annuities include deferred and immediate annuities. After the death of the owner, the account is generally paid to a named beneficiary or beneficiaries. As with life insurance, the terms of the account may dictate to whom the proceeds pass if a named beneficiary has predeceased the insured and there are not further instructions. Likewise, if there is no valid beneficiary, the owner’s estate will generally be deemed the beneficiary, and the proceeds will become a probate asset.

In summary, how an asset is held by a decedent affects how the asset will pass to the next owner. Different forms of ownership affect whether an asset will have to pass through the probate process. Careful evaluation of the form of ownership of one’s assets is an integral part of the estate planning process. An effective estate plan will address optimal forms of ownership based on one’s particular circumstances.

For more information, please contact the Private Client Services Practice at Wilchins Cosentino & Novins at 781-235-5500.

Disclaimer: The information in this article is intended solely as general information. It is not intended to constitute legal advice, and should not be relied upon as such. You should discuss your specific situation with an attorney.