Transferring Assets Upon Death by Operation of Law or Contract

Yesterday I provided an overview of how you can use a will to assist in transferring assets upon your death, but there are still other methods to consider. When you assign beneficiaries in your will, it is typically for items that don’t have a separate beneficiary on file or are not covered by operation of law. Those assets that are not bound by law or contract will be subject to the probate process.

Transfer by Contract

A transfer by contract is a fancy way to say the asset or policy has a beneficiary directly associated with it. Common items that transfer by contract are life insurance policies, retirement accounts, pensions, annuities, and so on. For example, when you purchase a life insurance policy, you also assign a beneficiary to receive the proceeds upon your death. This is the contract that allows your beneficiary to directly receive the benefit without having it go through probate.

One of the biggest mistakes people make is not keeping their beneficiaries current. Remember that 401(k) you enrolled in 10 years ago when you first started your job? Who did you assign as a beneficiary? Were you married or single? Have you had children since then? Are you now divorced? It is important to check on, and update your beneficiaries as things in your life change, otherwise you may end up giving something to someone who you didn’t expect or want to in the event of an untimely death.

The primary benefit of transferring assets by contract is that it is generally much faster than going through probate. Probate can take many months, while a transfer by contract can be completed in a few short weeks. In most cases, a death certificate needs to be provided with a claim form to be processed, and after verification the assets are released.

Transfer by Operation of Law

Some assets are governed by law and how the property is owned, but can vary by location. The most common example is when an asset is owned by more than one person. Some common types of ownership:

Joint Tenants With Right of Survivorship (JTWROS)
Example: Mary and Bill equally own a house as JTWROS. If Bill dies, Mary assumes 100% ownership. If Mary dies, Bill assumes 100% ownership.

Joint Tenants in Common (JTIC)
Example: Mary and Bill own a house as 50/50 JTIC. If Bill dies, His 50% ownership is passed on to his estate rather than to Mary. Likewise, if Mary dies, her 50% ownership is also passed on to her estate.

Intestate Death (death without a will)
Example: Mary is married to Bill. In some states, if Mary dies without a will, her assets will pass to Bill, as her husband, under the state laws where they live. Each state will have a system to determine the distribution. For example, assets could first go to a spouse, if there is one. If no spouse, the assets would go to the deceased’s children. If no children, the assets would go to the deceased’s parents, etc. Each state can have a different system for determining distribution. You should check with your state to determine how property passes upon intestacy.

One thing to remember: Because jointly owned assets are passed on to survivors under operation of law ‒ regardless of any other wishes you may have ‒ make sure you resolve any ownership issues during your lifetime.

Some Things to Consider

Going forward, if you have accounts with beneficiaries on file, make sure you check and see if the beneficiary is who you want, and make changes as necessary. Always review your beneficiaries after a major life change. If you are putting together a will, keep in mind how transfers by contract or law may negate what your wishes state in your will. This is where it can be very helpful to work with an attorney that is familiar with estate planning so that you can make sure there are no unexpected issues that arise upon your death.

Author: Jeremy Vohwinkle

My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.

2 comments
MELANIE M GREENAN ENGLE
MELANIE M GREENAN ENGLE

CAN YOU TELL ME WHERE TO FIND EXACTLY OTHER THAN THE DEED ITSELF JOINT TENANTS I SEE THE ABBREVIATION AND I REMEMBER SEEING IT ON MY CREDIT REPORT DIFFERENT TIMES I BELIEVE, OR DO I SIMPLE ASK LAND RECORDS TITLE PEOPLE, ON THE DEED IT DOESNT SAY I DONT THINK SO BUT THEY ARE TRYING TO MAKE IT LOOK LIKE TENANTS IN COMMONE NOT SO, MY FATHER PASSED AND I REMEMBER HE DELIBERATELY PUT IT AS JOINT TENANTS, I HAVE ORIGIANL AND ASKE COUNSIL TO SHOW ME WHERE IT SAID THIS AND SHE DIDNT SEE ANY SUCH THING ON IT I LIVE IN MARYLAND. DAD SAID THIS FOR REASONS TO PROTECT ME NOT FOR ANYONE TO GET HOUSE AND THEY WONT LEAVE ME ALONE, KEEP SUING ME AND SUCH I WON ORIGIANL CASE BUT THEY WONT STOP AND REASON IS MONEY MY BROTHER HAS MONEY PROBLEMS I ALSO TRYED TO HELP BUT THAT DIDNT WORK OUT ANYWAY I JUST WANT HIM TO LEAVE ME ALONE, THEY ALSO DIDNT KNOW ABOUT MONEY I HAD FROM COLLEAGE FUND IN TRUST WITH DAD I GOT THE RECORD SHOWED COUNSIL, BUT MY BROTHER THINKS ITS FROM THE CHILDHOOD HOME THEY SOLD, I DIDNT TAKE MONEY OUT OF IT, DAD GAVE ME MONEY OUT OF MY ACCOUNT W3ITH HIM ITS EVEN WRITTEN TO ME AS SUCH UNDER DIFFERENT NAME TOO SO I CAN PROVE THIS, I GAVE UP MY SHARE , MY NEWPHEW SAID IF I DIDNT THEN I WELL HE SAID OLDER PEOPLE IN FAMILY WOULNDT GO TO NURSING HOME. AND I ALSO SHARED MY OTHER HOUSE WITH MY SONS AND FAMILY , AT THIS POINT I HATE ALL OF THEM FOR WHAT THEY THINK I DID AND DIDNT DO AND THEY KEEP TRYING TO STEAL MY HOME WITH MY SONS AND I AM POOR IN COMPARISION VERY MUCH SO. LIVE LIKE CINDERELLA, SERIOIUSLY AND SO DOES MY SIDE OF FAMILY SONS AND ALL AND MY HUSBAND. ANYWAY ANY SUGGESTIONS WHERE TO PROVE THIS JOINT TENNANT, ON WHAT DOCUMENT IF NOT ON TITLE PAPER DEED, MAYBE TITLTE CO OR SUCH I KNOW THAT I AM ON ALL THE MORTGAGE DOCUMENTS AND TAX THINGS WOULD THAT PROVE IT ON RECORD SAYS PRINCIPAL RESIDENCE WHAT ABOUT THAT IS THAT THE SAME AS JOINT TENANTS, I EVEN GET IT MIXED UP NOW, MY FATHER IF YOU KNEW HIM YOU WOULD KNOW THIS FOR SURE, I JUST CANT BELIEVE THIS, NOW I BELIEVE MY SISTER YEARS BACK SHE DIED AND ONE TIME SHE TOLD ME SHE HAD THINGS TO TELL ME NEVER DID AND BACK THEN SAID MY BROTHER S DIDNT CARE ABOUT HER, FOR THIS REASON AND WHAT THEY DID TO MY MOM AND MY DAD NOW, I HAVE TO STOP THIS. FOR ALL REASONS AND MY SONS AND MY IMMEDIATE FAMILY SO THEY QUIT. AND FOR WHAT THEY DID TO MY SISTER AND MOM AND FATHER.

Zook
Zook

Another way to transfer property is the "married" way via [TE} Tenants by Entirety as opposed to JTWROS. There are estate planning drawbacks in unique cases, but....