A Common Estate Planning Pitfall: Overlooking the Difference between Designated Property and Probate/Trust Property

August 1, 2019 | By Steffens Law Office
A Common Estate Planning Pitfall: Overlooking the Difference between Designated Property and Probate/Trust Property

Many people make the mistake of preparing a Will or Trust, signing these documents, and then closing their estate planning file forever. Your estate plan must be updated regularly to make sure it accurately states your wishes.

How Property Passes to Heirs

Your property passes to your heirs in only one of two ways:

  • By designation
  • Through probate or trust.

By designation, I am referring to the process of identifying certain property for transfer to others by POD (pay on death), TOD (transfer on death), or JTWROS (joint tenancy with right of survivorship). All such designations transfer property at your death without the necessity of Probate or Trust.

A Probate procedure in court, or a Trust, only transfers property not previously designated. For example, a bank account which has no designated beneficiary. A Probate or Trust is needed to distribute this bank account to the heir(s). So here is the problem. If your Will says that Jack gets the contents of your bank account, but the account is already designated POD to Jill, then Jill gets the bank account. A property designation always trumps a Probate or Trust transfer because designated property legally transfers immediately after death before the Probate ever begins or a Trust can transfer. 

Avoiding Ownership Disputes

How can you avoid this pitfall?

  • Contact all of your account holders (banks, brokerage firms, IRAs, etc.) and ask for an information printout of each account showing ownership, the present value of the account, and any beneficiary designations. This is a very simple task that is usually accomplished with one keystroke on a computer. 
  • Request the same type of printout on all life insurance policies. I am reminded of a surviving spouse whose deceased husband had been previously married. She and her children were very upset to learn that the beneficiary on the decedent’s life insurance policy had not been changed and the proceeds were going to his ex-wife. This was a simple oversight by the decedent with a dramatic outcome for his heirs. 
  • Obtain a copy of all your property ownership documents: real estate deeds, vehicle titles, and even cattle brands should be collected. Note: if you leave all of your cattle to Jack in your Will, but Jill is named as the joint owner on the brand – Jill gets the herd. 
  • Once all of this information is collected, place it in your Steffens Law Office estate planning notebook under “Inventory.” If you do not have a notebook, call us at (308) 872-8327 and request one.
  • After you have organized this information, review it to see whether your property is designated, or not, according to your present wishes. Otherwise, your carefully drafted Will or Trust could become meaningless.