Transferring Property at Death
Generally speaking, property can be transferred at a person’s death by will, joint tenancy or state intestacy laws. Life insurance, annuities and retirement proceeds may be paid directly to beneficiaries outside of a decedent’s will, depending on the form of beneficiary designation. A will is an instrument by which a person makes a disposition of his or her real and personal property, to take effect after his or her death, and which by its own nature is changeable and revocable during that person’s lifetime. Wills should generally include provisions that: revoke prior wills; provide for payment of debts and administration expenses; establish residuary devise; provide for source of payment of death taxes; and appoint fiduciaries, including guardians for minor children.
Property held in joint tenancy with right of survivorship passes to the survivor outright. Confirming the survivor’s title is normally easy to accomplish. Nevertheless, the creation or continuation of a joint tenancy may jeopardize the best use of the marital deduction and have potential adverse tax consequences for the donor or survivor, as discussed below.
Contractual arrangements for transferring benefits at death include life insurance policies, annuities, deferred compensation contracts, individual retirement accounts, pensions and other employer retirement arrangements, payable on death bank accounts, and accounts in the name of the decedent as trustee for another. Assuming the designated beneficiary survives the decedent, all such death benefits passed to the designated beneficiary without the necessity for a will or probate. These assets, as well as property held in joint tenancy with right of survivorship, are commonly referred to as “nonprobate assets.”
Absent a will, a decedent’s property, other than the nonprobate assets described above, normally passes to the decedent’s heirs under the state’s law on intestacy. Indiana’s laws of intestacy divide the decedent’s assets among the spouse and children, with a provision made for grandchildren, parents, siblings, nieces and nephews, and more distant relatives, should one or more of the spouse and children fail to survive. While state intestacy statutes are designed to reflect the average decedent’s probable intent, the apportionment formula applied may not be the one you would have chosen. For example, you may not want anything to go to your children until after the surviving spouse’s death, or you might wish to provide for a person outside of your immediate family, such as a grandchild or a favorite niece. Additionally, relying on state intestacy laws also means that the decedent has forgone the choice of a personal representative of the estate and the right to waive the personal representative’s bond. Instead, the court will select the personal representative and may require an expensive and unnecessary bond, regardless of the identity of the beneficiary. For parents who have minor children, the failure to make a will also means that the parents lose the opportunity to nominate a guardian to care for their children and an opportunity to create a trust to avoid guardianship of a minor’s estate. The guardian instead will be selected by the court and the children will receive their intestate shares outright when they attain the age of majority.
In late 2010, Congress enacted changes to the Federal and Estate Tax laws, including increasing the amount that may be passed to others without the imposition of such taxes. Techniques for reducing or avoiding the federal estate tax should be considered by all individuals and married couples with total estates that approach or exceed approximately $5,000,000 in value. For a married couple, the principal device for reducing and deferring the federal estate tax is the optimum use of the marital deduction. Substantial savings can also be achieved by both single individuals and married couples through the creative and timely use of charitable gifts, both during life and at death.
Please contact our office to schedule an appointment to discuss your specific estate planning needs.