The manner in which assets are titled govern how those assets pass at death. And this can override a disposition contained in a Will or Trust. All the effort people take to prepare a Will or Trust can be wasted if assets are not titled properly. This is what I call the asset puzzle.
The first part of the puzzle is knowing the possible pieces (i.e., the way in which assets can transfer at death). There are differing ways in which assets pass at death and it can be downright confusing.
For exapmle, life insurance passes by beneficiary designation. Whoever is named as the beneficiary on the form in the files of the life insurance company takes at death. It does not matter what the decedent’s Will or Trust state, the beneficiary designation controls. Therefore, even though a Will may be created that leaves assets equally to the decedent’s children, if only one child is listed as a beneficiary of a life insurance policy, then that one child takes the life insurance proceeds and the other children get none.
Same applies to assets titled in joint tenancy. Bank accounts, brokerage accounts, real property and cars all have the ability to be held jointly with another person or persons. When one joint owner dies, the other joint owners receive the property automatically without the need for probate. But this also means that the assets pass without regard to a Will or Trust. All too often I see children unintentionally excluded because they are not included as a joint tenants on the assets.
For some reason people think that if they have a joint tenancy over their assets one of two things will occur. Either (1) the child who takes that asset will share with the other children (even though there is no legal obligation to do so), or (2) the Will or Trust will override the joint tenancy or beneficiary designation (which is false, the beneficiary or joint tenancy overrides the Will or Trust).
This is where planning comes into the picture. Planning is NOT the act of simply having a Will or Trust. A Will or Trust is a required part of planning, but that is just the beginning. The most crucial part of planning is looking at all the assets in the estate and changing title to those assets to conform to the plan. This means filing a new deed so the house is in the Trust, for example. Changing the title on bank or brokerage accounts, ensuring any beneficiary designations go to either the Trust or the proper individuals. In other words, looking at the entire, big picture and taking all necessary action. That’s truly the definition of planning.
By the way, it’s lack of planning that keeps lawyers fully employed because that is when litigation and probate ensue. And we lawyers make far more money on probate and litigation then we do on planning. So while people look at me skeptically when I plead with them to have an estate plan, I really should be pleading NOT to create a plan. So support your local lawyers, neglect your planning!