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 deceasedâ€™s children. If no children, the assets would go to the deceasedâ€™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 â€’ regardless of any other wishes you may have â€’ 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.
Incoming search terms:
- property passing by operation of law
- transfer by operation of law
- Which of the following transfers assets by operation of law
- assets transferred by operation of law
- assets pass by operation of law
- transfer by contract estate planning
- methods of transferring property by contract
- modification of a will by operation of law
- property passes operation of law
- property passing through operation of the law
Don't Miss: Credit Card Deals
Filed Under: Estate Planning
About the Author: Jeremy Vohwinkle is a Chartered Retirement Planning CounselorÂ® and spent a few years working as a financial planner. Today, he helps people make the most of their money by writing about personal finance here and elsewhere on the web. Jeremy is also Coach at Adaptu and a regular contributor for other publications such as Intuit, and American Express. Be sure to follow Jeremy on Twitter or Google+.