Monday, September 8, 2014

How Assets Are Owned Will Affect Distribution at Death


Anybody who knows me knows that I always recommend a person have a Will, Living Will, and Power of Attorney.

This article will focus on a Will and the effects of how assets are owned. A Will distributes “probate assets.” “Probate assets” are assets owned by you without an automatic beneficiary.
However, if you currently own assets with another person or have an account that names another person as “POD,” “TOD,” “ITF,” or otherwise establish a beneficiary, then such account is not a probate asset and will not be distributed pursuant to your Will. This account will be distributed to the named joint owner or beneficiary. (This can be true of many assets—real estate, stocks, bonds, insurance, CDs, 401(k) plans, IRAs, etc.)


Note that the laws about bank accounts changed years ago. There is no longer a difference in a joint bank account based on whether it is an “OR” account or an “AND” account. There used to be. Previously, if you had an “OR” account, then the account belonged to the joint owner at your death. With an “AND” account, only 50% of the account was a “probate asset” and distributed per your Will. No more—now all joint bank accounts are deemed to be “OR” and automatically belong 100% to the survivor.

It is important to review how assets are owned when you prepare your Will to ensure that the Will shall control. It is also important to remember this after you have signed your Will when opening new accounts, changing accounts, purchasing assets (house, stocks, bonds, etc.) to ensure that the asset is distributed as you desire. 

Perhaps you do intend that your co-owner will receive the asset even though the Will specifies a different distribution. That’s OK; however, you want to be in control of this decision. You also want to avoid family conflict. For example, typically a mother has a Will that leaves everything equally to her children. Mother may open a bank account with a joint ownership with her daughter. Was this for convenience? Did Mother expect that this bank account would be distributed equally to her children (as per her Will), or did Mother intend that the daughter named as joint owner would receive those “extra” assets at her death as a “thank you” for the extra care the daughter provided Mother?

Mother can leave her assets as she chooses. However, she must understand that a joint account will go to Daughter. Planning tip—if Mother does not intend Daughter to get this whole account, she could sign a Power of Attorney and leave the account in Mother’s name to avoid any question. 

Alternatively, if Mother wants Daughter to receive the extra account, it’s helpful to let your other children know this, with a brief note kept with Mother’s Will.

Other important considerations are tax consequences and Medicaid consequences.

Sometimes, Mother adds Daughter to an account thinking that this will “save taxes” or protect the assets from “Medicaid.” In general, this doesn’t work. However, this is very complicated and facts must be considered and analyzed before making any such determination.

Additionally, such a gift may create capital gains taxes due on sale of the asset that could have been avoided if the asset/house stayed in Mother’s name. Again, this is complicated, and beyond the scope of this article.

We at the Paton Law Firm, LLC can review your assets and goals and properly counsel you on how to best accomplish those goals and avoid unexpected consequences and family turmoil.