In order to better plan for the orderly disposition of assets it is important to understand how title to property passes upon death. In most cases, real or personal property passes upon death in one of three ways.
One way is automatically, or by operation of law. Any assets that are jointly-owned by the decedent and another person or group of people in a true joint ownership, will pass automatically to the surviving joint owners. Virtually anything that has a registered form of ownership can be jointly owned. Real property, for example, may be jointly owned, and if so, the deed will recite that the property has been transferred into “Mr. A and Mrs. A, his wife”, or “Mr. A and Mrs. A joint tenants with right of survivorship”, or as “tenants by the entirety.” Any of these designations creates a right of survivorship so that if Mr. A dies, Mrs. A automatically becomes the sole owner of the property, without regard to the terms of Mr. A’s will. The same is true of other jointly-owned property, without regard to the terms of Mr. A’s will. The same is true of other jointly-owned property such as a bank account which is in the name of “A” or “B”. This creates a right of survivorship, so that if “A” dies, “B” automatically owns the money in the account. Stocks and bonds will generally be registered “A” and “B”, J.T.W.R.O.S., which means joint-tenants with right of survivorship. Other personalty such as motor vehicles, boats or trailers can likewise be jointly-owned. Be sure to confirm the method of ownership of all of your assets to help in the planning of your estate.
The second general category refers to property which passes by contract to another individual upon the death of the primary individual due to the designation of a death beneficiary. The most common example of these types of assets is life insurance, which is simply a contract between the person who purchases the policy and the insurance company, in which the insurance company says that it will, if the conditions of the policy are met, pay to a designated beneficiary, upon the death of the insured individual, the life insurance proceeds. Unless the decedent’s estate is the beneficiary, this category of property is not affected by the terms of the decedent’s will or trust. Other examples of this type of property include I.R.A. accounts, pension accounts, K.E.O.G.H. accounts, various employee death benefits, certain annuity contracts and others. It is important to designate the proper beneficiary to ensure that this type of property will pass upon death as you have planned.
The third general category of property is simply everything that does not fall into the first two categories. This remaining property is either owned solely by the descendant or has been placed in trust during the descendant’s life. Anything in trust will pass according to the terms of the trust. Any property owned solely by the descendant will pass according to the descendant’s will, or if no will exists, in intestacy, i.e., according to New York State law. The New York intestacy statute, E.P.T.L. 4-1.1, was recently revised and provides a scheme for the distribution of assets owned by people who die without wills. Although the state does not appropriate these assets, it does dictate who shall receive them, in what amounts and provides a priority of choice for appointment of administrators, guardians, etc., which may not reflect the wishes of the descendant.
Once it is understood how property passes upon death, one can better develop an estate plan to make sure their property will pass as quickly and as inexpensively as possible up death to the desired beneficiaries.