David G. Bale
Wills and Trusts: What They Are and Why You Need Them Part 2
What Then, Are the Options?
1. LAST WILL AND TESTAMENT
The Last Will and Testament is the primary planning document specifying the transfer of property from a deceased person's estate to his beneficiaries.
It also can name a guardian for minor children or dependents, while providing other direction to courts for their care. (It may include a "Testamentary Trust" to provide for the minor's or dependent's financial estate.)
In order to protect the inheritance of rightful heirs, state law requires certain formalities that must be observed for a Will to be legally enforceable: state laws specify how the Will must be signed (or "witnessed"), in order to be effective after death. Laws on these matters vary from state to state.
Wills are always needed, no matter whether other methods of disposing of property are also used, because people commonly forget how they have "directed" their property at death using other methods of directing their property and they sometimes forget whether they have directed their property through contract, deed or title. In addition, some property has no title and needs to be directed through a Will or Trust if not already given during life. Wills can also be used to get missed property into the proper place (such as directed to a Trust), to make sure that the property is directed to the right recipients.
While other options are available, a Will is often the best choice if there are insufficient family resources for managing a Trust. Wills also may be more practical for younger clients, who are likely to have many later revisions of an estate plan, due to changes in family or acquisition of assets.
Trust is a legal structure that holds the assets of a Grantor, on behalf of a beneficiary.
Trusts are used a method of transferring property on death, or managing property during life. The property can have been granted to the Trust during someone's lifetime, or at her death-such as in a Testamentary Trust (often included in a Will and Last Testament).
Because a Trust holds assets, rather than the decedent grantor or settlor, trust administration-and distribution of inheritance-is generally faster, cheaper and more private than a probate administration, though more expensive on the front end to set up, due to the added work. Therefore, choosing this method of directing gifts can conserve property for the Grantor's family and other beneficiaries. Typically, the initial cost of planning under a Trust is much less expensive than the expense of probating the decedent's property.
In addition, real property held out of decedent's state of residence sometimes presents issues that suggest that a Trust should be used to avoid an ancillary administration in the non-resident state.
Often wills that 'catch' property not directed to the decedent's trust have a provision where assets "pour over" from the Last Will and Testament into the decedent's Trust if the assets were inadvertently held in a Grantor's/Settlor's individual name at death. Though if used properly, the decedent's Trust will already have all the property at the time of death, and the Will doesn't have to be used.
3. PAYMENTS ON DEATH AND TRANSFERS ON DEATH
Another method of avoiding probate court, and skipping past a Will to dispose of property, is when a planner and their financial institutions have a contract where that the institution will use the planner's financial accounts to issue a Payment on Death, or POD, to certain named persons under a beneficiary clause in the contract. State law permits the transfer of these types of POD gifts without first probating the property on the owner's death.
The POD may go to a Trust. If that's the case, then the gift never goes into the deceased planner's estate, and it still avoids probate court; this plan can be a powerful way of using gifting and estate administration plans similar to a Will, but outside of probate, thus reducing costs of administration. This contract interest to make payment on death in some cases may be called a Transfer on Death, or TOD.
There is a similar method available of transferring real estate, however, it depends on state law. In Ohio, you may transfer real estate outside of probate through an affidavit for a death transfer of real estate, that, prior to death, is placed on file in the County Recorder's office. It operates to transfer the real property (real estate) to named beneficiaries on the planner's death, without a probate court.
One weakness of these methods of transfer by POD or TOD is that everything depends on the survival of the beneficiaries. If the beneficiary passes away before the grantor, then gift will fail. However, if the POD or TOD is to a Trust, then the Trust survives the death of the decedent, and the beneficiaries named may receive the property just as they would under a Will if they predecease the owner of the POD or TOD property.
Real Estate property may in some states not be permitted to transfer to a Trust, however, under a TOD, depending on the state law governing the transfer of real property in which the property is located.
4. JOINT TENANTS WITH RIGHT OF SURVIVORSHIP
The terms "Joint Tenants with Right of Survivorship" refer to a type of ownership of property between two or more owners of the legal title to property. The word "survivorship" refers to the survivor's right to take sole legal title to the property on the death of their joint owner(s). Often, this is referred to in the title of bank accounts as "JTWROS," and it lists each owner by name on the institution's contract account with the joint owners.
This type of ownership should be reserved to persons intended to be an actual owner of the property prior to the death of other owner(s). This is due to the confusion about ownership during life, to prevent the unauthorized use of funds or property during the real owner's life, and to properly direct gifts on death of the real owner(s) of the property.
In some cases, people use a JTWROS for convenience, allowing someone else to act as a manager of a bank account or other property. However, on death, that "helper" automatically becomes the titled owner of the account; in addition, as referenced above, they also look like the real owner during the life of the owner.
Absent clear indications of a managerial relationship in the establishment of a JTWROS for the helper, which is a kind of "Trust" in actuality, the helper is difficult to dislodge from ownership; and the rest of the family or beneficiaries of the primary owner are either in a litigious situation or out of luck. There is also an inevitable family relationship problem that occurs in these situations. In such a case, a POA is a better instrument to use for the helper than ownership under title of JTWROS.