Managing Nonprobate Assets: Planning for Your Entire Estate
Signing your Will can provide a feeling of great relief. However, before you cross estate planning off your “To Do” list, it is important to remember that Wills do not typically govern “nonprobate assets,” so it is critical to consider what nonprobate assets you own, how those assets will pass at death, and whether these transfers are aligned with your overall estate plan.
Nonprobate assets are rights and interests that pass at death under a written agreement that is separate from a person’s Will. Examples include: assets passing under a revocable living trust or community property agreement; assets held in a joint bank accounts 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).
For example, if Jane has a joint tenancy with rights of survivorship bank account with her sister Mary and Jane’s Will leaves everything to her children Anna and Bobby, when Jane dies Mary will automatically own 100% of the bank account, regardless of the fact that Jane’s Will directs everything to her children. While this automated transfer of ownership may simplify things immediately after the decedent’s death, it may also defeat tax planning that has been provided for in a Will.
Furthermore, assets such as life insurance proceeds and retirement plan benefits often comprise a significant portion of an individual’s estate. In order to ensure that these valuable assets pass in a manner that is consistent with your Will, it is critical to review the beneficiary designations for these assets and update them to coordinate with your Will. As an 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.