Transferring Assets at Death: Wills and Probate

Estate planning typically involves the analysis of ownership, transfer and taxation of assets, both during a person’s lifetime and at death. For most people, however, estate planning can simply be summarized as: “Where do my assets go when I die?”

An Introduction

Title to an asset (the name(s) on the account or deed) is the first determination of how the asset will pass at death. The way in which the asset is titled will determine whether the deceased person’s interest in the asset passes to any other surviving owners or beneficiaries, or whether the asset passes under the deceased person’s will or estate.

In any estate planning, it is critical to determine how title to an asset is held; improper titling of assets can create unintended consequences for a deceased person.

For example, two brothers purchase hunting land. They mistakenly title the property as “joint tenants,” instead of “tenants in common.” Each brother intends to leave his one-half interest in the property to his respective spouse at death. Instead, because the property is held jointly, the interest will pass to the surviving brother at the death of the first brother.

Assets can be transferred in numerous ways at death — through wills, revocable trusts, joint ownership, beneficiary designations on assets, such as life insurance and retirement benefits, and payable‑on‑death (POD) accounts. When determining what may be subject to probate, think of a person’s assets as being separated into two pots.

The first pot contains assets that will automatically pass to someone else as a matter of law at the person’s death.

Assets such as life insurance, annuities and retirement benefits (think IRAs and 401(k) accounts), as well as any other asset with a beneficiary designation, pass to the named beneficiary, regardless of what the decedent’s will provides. Similarly, assets held jointly with another person with rights of survivorship pass outright to the surviving owner at the decedent’s death, regardless of what the decedent’s will provides. Finally, assets held in a revocable trust pass to the beneficiaries of the trust without probate.

The second pot of assets are the remaining assets owned in the decedent’s name alone (without beneficiary designations, etc.) that will pass under his or her will.

For example: when the first spouse of a married couple dies — and all of the assets are held jointly with rights of survivorship between the spouses, or name the surviving spouse as beneficiary — there will be no probate, because all of the assets pass outright to the surviving spouse as a matter of law. However, when the second spouse dies, there will be a probate proceeding required to pass the assets of the surviving spouse in his or her name alone (such as real estate and bank accounts) to their children or other heirs.

Estate-planning-fundamentals

Wills

A will is the most basic estate planning document regarding how you intend to administer your estate at your death. It serves several primary functions:

1. A will specifies who you want to receive your probate assets at your death, as well as any desired restrictions on the transfer of the property (for example, you may want assets held in trust for your children until they reach an appropriate age).

2. A will names a personal representative who, with the approval of the court, pays your creditors and taxes, and distributes the remaining assets as directed in your will.

3. A will allows you to name a guardian to raise your minor children and manage their assets.

4. A will can also allow you take advantage of various estate tax planning techniques.

Probate

Before it becomes effective, every will must be “admitted” by the probate court in the county where a person resided at his or her death. A will does not avoid probate. The probate court or register in probate (depending on whether the estate is in “formal” or “informal” administration) supervises the inventory and valuation of your assets, the payment of debts and the distribution of remaining assets to heirs — either according to a will, or if there is no will, according to state statutes.

Essentially, the probate process allows for the transfer of legal title of assets to the decedent’s heirs, after the payment of the decedent’s creditors and other expenses. The naming of a personal representative by the court — who is given court-stamped documents to provide evidence of his or her role on behalf of the estate — provides assurance and protection to banks and other parties that they are dealing with someone who has legal authority to act on behalf of the decedent’s estate.

Probate ensures that the statutory procedures for administration of the estate are properly followed. Interested persons (family members, heirs, etc.) must receive a copy of the will, be notified of any hearings and obtain documentation from the personal representative affirming that the estate has been administered correctly.

The costs of probate vary with the size of the estate and the type of assets involved. An estate that involves relatively liquid assets — such as bank accounts and a home — is normally very easy to resolve. The process is more complex if there are significant estate tax issues or significant nonliquid assets, such as several parcels of real estate or an interest in a small business. There are certain statutory requirements associated with providing notice to interested persons, notice to creditors, filing inventories, etc., which can add legal fees and cause even the simplest probate to take six months to a year or more to complete. Most personal representatives will hire an attorney to assist with the administration of the estate to ensure all of the procedures and requirements are followed properly.

If a person dies without a will, their estate must still go through probate.

The court will appoint a personal representative — normally a spouse or family member — to administer the estate. The decedent’s assets will be distributed to his or her “heirs at law” (commonly called, “the next of kin”), which is set out in the state statutes. For example, the asset of a single person with no children will generally be distributed to his or her parents; if the parents have died, the assets will be distributed to the decedent’s siblings. Obviously, this may or may not be what the decedent desired.

The process of probate is important to banks, financial institutions and other custodians holding financial accounts; it ensures they are turning over the decedent’s accounts to the proper person with authority to act on behalf of the estate. For example, at the death of a person, his or her child can’t just give the bank a copy of the decedent’s will and request his or her funds. The bank needs to see the court-stamped probate documents to ensure it is protected in handing over the funds to the personal representative, and that no other persons or creditors have claims to the funds.

Should you avoid probate? It depends.

Probate is a time-tested and court-supervised procedure to ensure that an estate is properly administered. The complexity and cost of probate varies by state. Probate in some states and large cities can be costly and take a long time. Unfortunately, some attorneys and others who have marketed revocable living trusts and other “probate avoidance” ideas to the general public over the past couple of decades often describe the process as an “evil” to be avoided. This has created and promoted probate avoidance as a goal in and of itself, which may be inappropriate, unnecessary, and in some cases, complicate the administration of an estate if not completed properly.

Depending on your state and county of residence and the size of your estate, a simple will may be adequate and relatively easy to administer. However, for larger estates, or estates with more significant tax or other planning issues, revocable living trusts and other techniques may be more appropriate. Consulting with an attorney who can offer the appropriate solution based on your circumstances is the best course of action.

In the second part of this series, we discuss revocable living trusts as a “probate avoidance” tool. Click here to read more.
Hewins Financial Advisors, LLC d/b/a Wipfli Hewins Investment Advisors, LLC (“Hewins”) is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940. Hewins is a proud affiliate of Wipfli LLP. Information pertaining to Hewins’ advisory operations, services and fees is set forth in Hewins’ current Form ADV Part 2A brochure, copies of which are available upon request at no cost or at www.adviserinfo.sec.gov. The views expressed by the author are the author’s alone and do not necessarily represent the views of Hewins or its affiliates. The information contained in any third-party resource cited herein is not owned or controlled by Hewins, and Hewins does not guarantee the accuracy or reliability of any information that may be found in such resources. Links to any third-party resource are provided as a courtesy for reference only and are not intended to be, and do not act as, an endorsement by Hewins of the third party or any of its content or use of its content. The standard information provided in this blog is for general purposes only and should not be construed as, or used as a substitute for, financial, investment or other professional advice. If you have questions regarding your financial situation, you should consult your financial planner, investment advisor, attorney or other professional. Hewins does not provide tax, accounting or legal services.
Dean Stange
Dean Stange

J.D., CFP® | Principal, Senior Financial Advisor

Dean Stange, J.D., CFP®, is a Principal and Senior Financial Advisor with Wipfli Hewins Investment Advisors in Madison, WI. As an attorney, Dean has provided estate and succession planning advice to business owners for more than 20 years. He primarily focuses on the ways in which business ownership, tax and estate issues can impact long-term financial planning.

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Transferring Assets at Death: Wills and Probate

time to read: 5 min