Slides Chapter 4 Flashcards
“Pure” Will Substitutes
Life insurance
Pension accounts
Joint accounts (including TOD/POD bank, brokerage, and mutual fund accounts)
Revocable trusts
“Impure” Will Substitutes
Joint tenancies in real property
“Impure” because transfer conveys immediate lifetime value
3 things about will substitutes
1) tend to be asset-specific;
2) avoid probate; and
3) are not subject to the Wills Act.
Defined Benefit Plan
Employee typically receives an annuity
If benefit is annuitized, no remainder to pass at death
Uncommon today among private employers.
Defined Contribution Plan
Employee owns a specific account
Employee controls investment and distributions in retirement
Remainder passes outside of probate to designated beneficiaries
Individual Retirement Account
Similar to a defined contribution plan, but subject to contract between account holder and custodial institution
Remainder passes outside of probate to designated beneficiaries
Beneficiary Designations
Categories of Non-Probate Transfers
Life insurance Annuities Retirement Plans - Special Rules Real Estate (in some states) POD/TOD
Operation of Law
Categories of Non-Probate Transfers
JTWROS
Gift with remainder interest
Terms of Agreements
Categories of Non-Probate Transfers
Trusts
Premarital agreements
Interests in businesses if disposition controlled by agreements – otherwise probate
Others
Wills Act Requirements
5
Writing
Signed by testator
Must be attested to by witnesses or be in the hand of the testator (holographic)
Often notarized
Often drafted by an attorney and signed at attorney’s office
Subject to probate
Non-Probate Requirements
Usually written (required if real estate) but can be oral Usually signed by person , especially trusts and beneficiary deeds, but sometimes done over phone or internet Normally no witnesses required though common with inter vivos trusts Rarely notarized though common with inter vivos trusts and beneficiary deeds Often business’ forms (except trusts). Can often be handled over phone, fax or internet Not subject to probate
Are trusts probated?
unless testamentary (on the face of the will), passes outside of probate
Are JTWROS and tenancy by the entirety probated?
tenant’s share = non-probate
TIC: tenant’s share = probate
Is Life Insurance probated?
unless estate is beneficiary (or becomes alternate beneficiary), nonprobate
Are Annuities and retirement accounts probated?
unless estate is beneficiary (or becomes alternate beneficiary), nonprobate
Are Security accounts probated?
probate, unless titled TOD or POD
Are TOD deeds for real estate probated?
nonprobate
Contracts of Deposit with Financial Institutions
What rights exist (i) during life and (ii) at death of original owner and, if there is a joint owner, the joint owner:
Single party account (=Probate)
Single party account with a POD designation (=non-probate)
Tenancy in common (rare) (=Probate)
JTWROS (default if more than one person on account) (=non-probate)
Agency/Convenience account (=Probate)
Gifting: Not Exactly a Will Substitute
A coordinated estate plan often includes lifetime gifts.
Completed gifts (of course) skip probate.
Completed gifts well in advance of creditor problems avoid the reach of future creditors.
Gifts may also have transfer-tax benefits (maximizing the amount than can be transferred tax-free during life) and/or income tax benefits, if an income-producing asset is transferred to a non-dependent beneficiary in a lower tax bracket.
Gifts generally transfer value at a time that is more meaningful to the recipient; a child generally needs more financial support in her 20’s than in her 60’s. It also allows the giver to see the enjoyment of the gift.
