The difficulty and heartbreak of losing a spouse are oftentimes accompanied by financial uncertainty. What happens to your spouse’s assets is largely dependent on if their property is transferred through or around probate. The probate process proves the validity of the will and allows assets to be transferred from the descendant to the rightful beneficiaries. Property passing by will, or by law of intestacy are two methods by which property of the decedent passes through probate.
A person who dies with a valid will is said to have died testate, while someone who dies without a valid will is said to have died intestate. A will is probably the most widely recognized means of transferring assets at death. Assets owned outright by the decedent (Fee Simple titling), or their share of property owned as either Tenancy in Common or Community Property are types of property that pass by will. When someone dies without a will, or if the will does not properly dispose of a decedent’s property, the probate court is involved in the distribution of the decedent’s estate. Each state has an order for disposition to the heirs of the decedent. Typically, the surviving spouse is given primary consideration under the laws of interstate succession.
Although probate provides orderly administration of a decedent’s assets, it can be very costly and complex. Avoiding probate can help speed up the asset-transferring process to the descendant’s loved ones. Two methods of avoiding probate include passing property by contract, or by operation of law. Both methods must have a process of designating who will receive the property after the current owner’s death.
Property passing by contract makes use of a beneficiary designation. Life insurance is the most common beneficiary designation. Traditionally, the life insurance contract gives the owner the incident of ownership to designate a beneficiary, with the designation being revocable up until the death of the insured. Other common beneficiary designations include naming a beneficiary on their employer retirement accounts or IRA, or having payable of death (POD) or transfer on death (TOD) accounts.
Assets passing to their heirs by operation of law also avoid probate. One way this can be accomplished is by assets passing by the terms of a trust. Assets that are transferred to living trusts prior to the death of the grantor, avoid probate. Property titling is another way probate can be avoided. Assets passing by Co-Ownership with Survivorship, Joint Tenants with Rights of Survivorship (JTWROS), and Tenancy by Entirety, are all forms of property ownership that can act as will substitutes by using the operation of law principle.
Laurel Buchanan
Associate Financial Advisor
