Consider your non-probate assets in your estate plan

Remember that your Last Will and Testament may not control all of your assets.

Assets that are not controlled by your Will are sometimes called “non-probate assets.” Examples of non-probate asset are:

1. An IRA account payable to named individuals, per the beneficiary designation on file with the financial institution that holds the IRA account;

2. A life insurance policy payable to a named individual, per the policy beneficiary designation;

3. A bank account that names an individual as a pay-on-death or transfer-on-death beneficiary, per the signature card or account agreement on file with the bank; and

4. A home or account that is held in two individuals’ names, with right of survivorship or as “tenants by the entirety.”

I often remind my clients that their non-probate assets’ designation of beneficiaries or the titling of those assets will override and trump what their Will provides. For that reason, I often assist my clients in changing the beneficiary designations on accounts; otherwise, their overall estate plan can be canceled and defeated.

Here is a common real-life example of what I have seen happen more than once:

Mom is a widow and has three children, and provides in her Will that the three children receive everything equally. But before Mom dies, she goes to the bank and makes Child A the co-owner with right of survivorship on her bank account. Mom later dies. Even though Mom’s Will gives her estate equally to her three children, they will not share in that bank account equally, because Mom set the account up for Child A to receive it, per the bank account provisions.

Some of my clients tell me that they set up their accounts with Child A on their accounts as a joint owner because of their concern about incapacity later, thereby allowing Child A to sign their checks and pay their bills. My response and recommendation is to take Child A’s name off of the account as a co-owner, and instead sign a Durable General Power of Attorney naming Child A as an agent. That way, the overall estate plan is not skewed, and Child A can manage the accounts and pay the bills using the Durable General Power of Attorney if the client should become incapacitated.

Usually, this example is only a problem when there is a single parent who has more than one child.

On the flip side, I usually urge my married clients (with no children by a prior marriage) to make sure that all of their assets are non-probate assets, so as to avoid the need to probate the Will of the first spouse to die. Therefore, usually the home should be in both spouses’ names as husband and wife, the bank accounts should be held jointly with right of survivorship, and the IRAs and life insurance policies should name the spouse as the beneficiary. If you are married, you still need a Will, because there might be some probate assets, such as a wrongful death cause of action to which your estate might be entitled, or some interest in a family business or other entity. Generally, though, it is not necessary to probate the Will of the first spouse to die.

In sum, remember that your estate will pass to your heirs, via probate assets and/or non-probate assets; the key is to make sure that the probate assets and non-probate assets dove-tail and do not conflict, thereby skewing and defeating your overall estate plan.