Coordinating Non-Probate Assets with your Estate Plan

Related Practice: Estate Planning & Administration

Signing your Will feels like the end of the estate planning process. However, before you cross estate planning off your “To Do” list, it is important to remember that Wills do not typically control nonprobate assets. “Nonprobate assets” are rights and interests that pass at death under written instrument or arrangement other than a Will. They include assets in bank accounts held in joint tenancy with rights of survivorship, payable-on-death bank accounts or transfer on death security accounts, life insurance policy proceeds, and funds held in retirement plans (including 401(k)s and IRAs. With this in mind, it is critical to identify what nonprobate assets you own, how those assets will pass at death outside your Will, and whether these transfers are consistent with your overall estate plan.

Consider this example: Tom is unmarried and has three children. Tom executes a Will leaving all of his estate to his children in equal shares. Later, Tom adds his friend Jerry’s name on his bank account for convenience so that Jerry can help Tom pay his bills. The bank employee, without a discussion with Tom, structures the account as a “joint tenancy with rights of survivorship” (“JTWROS”) account, with Jerry as a joint owner. Unbeknownst to Tom, this designation converts the account form a probate asset—which would be governed by Tom’s Will—into a nonprobate asset. Therefore, when Tom dies, Jerry will receive 100% of the bank account as the surviving joint owner, defeating Tom’s intention in his Will to leave his entire estate to his children. While Jerry could disclaim the account or accept the funds and then make gifts to Tom’s children, he may not wish to do so, and such gifts would require extra steps and action by Jerry. Finally, depending on the value of the account and the timing of any disclaimer, any disclaimer or gift by Jerry may result in a tax reporting obligation for Jerry.

To ensure that these valuable assets pass in a manner that is consistent with your Will, it is critical to review the titling of your financial accounts as well as the beneficiary designations for these assets and update them to coordinate with your overall estate planning wishes. Do not rely on your financial institution to make default choices for you that contradict your plan for your estate. As an example, if you wish for a friend to have control over your bank account in the event of incapacity or to help you pay bills, you may prefer to execute a Durable Power of Attorney naming him or her as your agent rather than granting him or her joint ownership of the account. As an additional example, if you have established a Trust under your Will for your spouse or children, you may want to name the Trustees of those Trusts as the beneficiaries of your life insurance or retirement plans rather than directly naming your spouse or children as the beneficiaries. Forgetting or failing to revisit nonprobate assets and amend beneficiary designations can result in defeating the very foundation of your overall estate plan.

If you wish to receive more information about planning for your nonprobate assets, please contact a member of the Stokes Lawrence Estate Planning Group at (206) 626-6000 in Seattle or (509) 853-3000 in Yakima.