How is Estate Planning Used to Distribute Property?

One of the tasks of estate planning is to distribute property, through a variety of ways. A recent article from The News-Enterprise, “How property passes upon death is central to estate planning,” says there are generally four ways to pass property after death.

Beneficiary accounts. Any type of account with a beneficiary designation listed on the account paperwork passes directly to the beneficiary. Most people think of life insurance proceeds as the typical beneficiary designation. However, this can also include investment accounts, some retirement accounts and payable-on-death (POD) or transferable-on-death (TOD) accounts. It’s also possible for real estate property to have a beneficiary designation.

The individual owns property with a beneficiary designation during life but upon death; the property passes directly to the beneficiary. It’s a quick process, usually requiring a death certificate and perhaps other paperwork to pass the asset to the beneficiary.

The primary problem with using a POD or TOD account in this way is what happens if the beneficiary is disabled and is receiving means-tested government benefits. Receiving assets directly could put the person’s entire benefits structure at risk.

Jointly owned property. If an account or property is held jointly and includes survivorship language, the joint owner will own the entire share of the property upon the death of the first co-owner. Without the proper survivorship language, the decedent’s share of the property will pass through probate.

Jointly owned property is commonly how a married couple own assets. There are potential risks involved. If property or assets are left to one spouse, when the surviving spouse dies, the survivor’s separate beneficiaries may inherit the assets rather than the decedent’s intended beneficiaries.

Similarly, suppose one child is added to an account so they may continue to pay bills. In that case, the named child will become the account’s new owner upon the parent’s death, and they will have no legal requirement to share the account with siblings or other beneficiaries.

Trusts. Trusts provide the most control for managing assets during life and after death. Property held in trust does not pass through probate and goes directly to the beneficiary as per the instructions in the trust. In addition, a trust created with an experienced estate planning attorney includes provisions for distributing assets owned by the trust if the beneficiary is disabled, incapacitated, or a minor child, potentially offering significant asset protection for the grantor—the person creating the trust—and beneficiaries.

Property not falling into any of these categories is distributed via a will and through probate. If the decedent had a will, the executor must file it with the court. If there is no will, then a probate case must still be established. However, the distribution of assets will be according to the laws of the state of residence, regardless of the decedent’s wishes.

An estate planning attorney reviews their client’s property and unique situation and prepares an estate plan to distribute property in the most ideal manner based on the client’s goals.

Reference: The News-Enterprise (May 6, 2023) “How property passes upon death is central to estate planning”