Common Misconceptions About Estate Planning
Two of the most common estate planning misconceptions people have are that, if they have a will, they won’t have to go through probate and that if they don’t have a will, the state will get their money. Dealing with the second one, if a person dies without a will, they die intestate, and the state of Colorado will use the statutes to write up a will, which means they will set up something of an expected distribution. As a result, these common misconceptions can lead to confusion and stress for family members.
For example, if you’re married, the spouse will receive 100% if they have children, while the estate of a person with no spouse but children will be divided amongst the children. Strangely, if a couple is married without children, a portion of that estate will go to the parents of the deceased spouse. Most people are surprised to learn that; I’ve worked on estates in which that happened and it had a very significant impact on that individual; that’s a really huge myth.
Another misconception is that, if you write a will, it affects every asset you own. In reality, the only assets impacted by the terms of your will are those you own in your individual name that do not have a contract attached, including POD accounts, bank accounts, transfer and debt accounts, investment accounts, as well as insurance, annuities or IRAs. Other than transfer, which would void a will reference, if you own property in joint tenancy, that property passes automatically to the joint tenant upon death of the individual.
What is Probate?
Probate is an administrative process whereby an individual is appointed and granted the authority by the court to access, deal with and negotiate the decedent’s assets of the decedent. For example, if an individual dies, someone has sign documents dealing with real property, bank accounts and any other assets that are in their name. The probate process is just an administrative process which is designed, first of all, to nominate someone to be appointed to be your personal representative. The process requires that all creditors be notified.
Everyone has opened a newspaper and seen a little notice to creditors that somebody has died, because the personal representative is obligated to pay the decedent’s debts first, if there’s any money to do so, and then any taxes owed, including estate and income taxes, after which they can sell property or consolidate. Their job is basically to collect and dispose of the assets pursuant to the client’s will or pursuant to the laws of intestacy.
What is the Non-Probate Property?
Non-probate property is property that will pass outside of either the administrative process or the terms of the will. There are three examples of non-probate property; one is contract property, which includes insurance, annuities, 401(k)s, IRAs and the like; accounts in which there is a contract between the decedent and another company, in which the contract states what is to happen to the property upon death. Because everything is spelled out in the contract, there is no need for a will or to go through probate.
Joint tenancy is another way for property to pass outside of probate; joint tenancy with right of survivorship means that the property passes to the survivor when the other joint tenant passes away. For real property, a death certificate is filed and the survivor gets the property; we like to call that the Last one out wins rule. The survivor on a joint tenancy property becomes the owner and it doesn’t go through probate and it is not transferred pursuant to the decedent’s will.
The third way to have property passed outside of the probate process comes if the property is placed in the name of a trust, rather than the name of the decedent. That does not go through probate because the decedent doesn’t own it; the trust does.
For more information on Misconceptions About Estate Planning, a free initial consultation with a Colorado Estate Planning Attorney is your best next step. Get the information and legal answers you’re seeking by calling (303) 814-2600 today.
