When someone dies, their assets pass to their beneficiaries. However, this process is not immediate. The assets must first be possessed by a fictional entity known as that person's estate. An estate is somewhat like a corporation, in that the law recognises it as a legal person even though the entity itself is fictitious. Before the assets can be distributed to beneficiaries, they must first pass through the individual's estate. There are four ways to transfer property to the estate: via probate, via contract, via a trust and via joint ownership.
Write a will or rely on your state's intestacy laws (the rules for people who die without a will). When you die, your assets will be submitted to the probate court. The court will transfer all of your assets to your estate and then appoint a personal representative to distribute the assets from the estate to the beneficiaries, who are either specified by your will or intestacy law.
Make contractual agreements that transfer property before the assets go to probate. These contractual agreements will transfer assets from your estate without first having to go through the probate court (which saves taxes and court fees). Contractual agreements, such as life insurance policies, have named beneficiaries who automatically receive the asset at your death. In these cases, the estate serves as a temporary placeholder for the assets before the beneficiaries receive them.
Create a trust that transfers property directly from you to your estate before you die. The trust will hold the property for you and you will be the trust's sole beneficiary during your life. Your trust will also have provisions explaining who will be the second beneficiary and receive the assets after your death. Though your estate will be holding your assets "in trust" for you while you are alive, you will still have the sole use of the property.
Transfer property to a joint ownership agreement. This can be used for tangible property such as homes, or intangible property such as bank accounts. When you die, your estate will automatically assume ownership of your half of the property. Then, after probate is closed, the estate will automatically relinquish ownership rights to your half of the property and the joint owner will own the entirety of the asset.
Estate planning is complex and choosing the right transfer method can be difficult. Enlist the aid of a competent estate planning attorney before creating your legal transfer documents.
Tips and warnings
- Estate planning is complex and choosing the right transfer method can be difficult. Enlist the aid of a competent estate planning attorney before creating your legal transfer documents.