Understanding Property that Passes Outside of Probate is Crucial for Estate Planning
Estate planning often involves navigating complex distinctions between probate and non-probate assets. Understanding these differences is important for ensuring that a client’s wishes are fulfilled and that the estate is handled efficiently. Here, we explore the implications of non-probate assets on estate planning and taxation, and offer practical advice for managing these assets effectively.
Taxable Estate vs. Probate Estate
The probate estate comprises assets governed by a decedent’s will and includes real and tangible personal property owned solely by the decedent at the time of death. Conversely, the federal and Massachusetts estate tax encompasses all property in which the decedent had an interest, including non-probate property. This distinction can be confusing for some, particularly when an estate plan involves both probate and non-probate assets.
For example, a client with three children might draft a will to divide their estate equally among them. However, if the client also names one child as the sole beneficiary of an insurance policy, that policy’s value will not be subject to probate but will still count towards the estate’s total for tax purposes. Therefore, to ensure equitable treatment and proper tax planning, Marshfield probate lawyer should require clients to disclose all assets, both probate and non-probate, along with their approximate values. This comprehensive disclosure enables attorneys to draft an appropriate will and advise clients effectively about their non-probate assets. Some clients may include language in their trust that allows for equitable allocation of non-probate assets to adjust the tax liability between beneficiaries who receive unequal shares of the taxable estate.
Joint Property and Survivorship Issues
When a client owns property jointly, the disposition of that property if the client survives the joint owner is governed by the client’s will. According to the Massachusetts Uniform Probate Code (MUPC), an individual who is not proven to have survived an event is considered to have predeceased it M.G.L. 190B, § 2-702(a). Clients should consider how their will or trust handles the possibility of simultaneous death or the acquisition of new assets at the time of death.
Estate planning attorneys in Marshfield, MA must address common misconceptions about joint property. Often, clients place accounts in joint names for convenience, such as to facilitate access in case of incapacity, without intending to confer full ownership to the joint owner outside of probate. This misunderstanding can lead to disputes among beneficiaries. To clarify intentions and avoid conflicts, attorneys might include explicit statements in the will regarding the survivorship of joint assets. For instance, a will might state: “In the event that I own any bank or investment accounts jointly with right of survivorship with John P. Doe, it is my intention that such accounts be administered as residuary assets of my estate.” Joint ownership also opens the client to their child’s creditors and possible bankruptcy implications if their child files a bankruptcy petition.
Transfer on Death (TOD) Accounts
To avoid the complications of joint tenancy, clients can use Transfer on Death (TOD) designations. Under M.G.L. 190B, § 6-301, Massachusetts allows clients to register securities or accounts with a TOD designation, enabling these assets to pass directly to the designated beneficiary without probate. This method is also available for most bank accounts and offers a straightforward alternative to adding a joint owner during the client’s lifetime.
Set-Off Against Share of Estate
When assets pass outside the will, such as through joint ownership or TOD designations, a will can include clauses that account for these transfers. For example, a will might state: “I give and devise the sum of $20,000 to John P. Doe; provided, however, that this amount shall be reduced by the full value of any assets owned jointly with John P. Doe that pass to him outside of this will.” Such clauses help ensure that the distribution of the estate aligns with the client’s intentions, even when some assets bypass probate.
Life Insurance, Annuities, and Employee Benefits
Life insurance, annuities, and employee benefits are typical examples of non-probate assets. Clients should regularly review beneficiary designations for these assets to ensure they align with their overall estate plan. Massachusetts General Laws Chapter 190B, § 2-706 acts as an antilapse statute, providing that if a beneficiary predeceases the decedent, a substitute gift will be created for the beneficiary’s descendants M.G.L. 190B, § 2-706(a)(1).
Conclusion
Effective estate planning requires careful consideration of both probate and non-probate assets. By understanding the implications of non-probate assets on estate tax and distribution, attorneys can help clients achieve their objectives and minimize potential disputes. Comprehensive disclosure, clear intentions regarding joint property, and proper use of TOD designations and beneficiary designations are essential components of a well-rounded estate plan. For more information, please call our Marshfield probate attorney in our office at +1 (781) 882-8001 to schedule your free consultation.