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. Big mistake!

Here is why. Your property passes to your heirs in only one of two ways: (1) by Designation, or (2) 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) or “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. 

How can you avoid this pitfall?

  1. Contact all of your account holders (banks, brokerage firms, IRAs, etc.) and ask for an information printout of each account showing ownership, present value of the account, and any beneficiary designations. This, by the way, is a very simple task– usually accomplished with one keystroke on a computer. 
  2. Request the same type of printout on all life insurance policies. I am reminded of a surviving spouse who’s 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 all was going to his ex-wife. A simple oversight by the decedent – dramatic outcome for his heirs. 
  3. 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. 
  4. 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 and request one.
  5. 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. 
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