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March 2022 Newsletter - 4 Ways To Transfer Assets

March 2022 Newsletter - 4 Ways To Transfer Assets

March 14, 2022

Dear First Mates,

Hello everyone! I hope this newsletter finds you well and in good spirits. March comes in like a lion and out like a lamb as they say. The excitement of spring is here. It’s also my birthday month - 41 here I come! It’s wild how time flies. This month, we are discussing the four ways assets can transfer from one person to another after death, which is the beginning of understanding estate planning.

There are many horror stories out there when it comes to asset transfer. A common one is not updating beneficiaries, so former spouses receive the assets (much to the horror of the current spouse). Let’s make sure that your assets are passed to exactly who you want and that each of your accounts has an asset transfer plan in place.

The four ways assets can transfer is through:

1) A Will via the Probate Process 

What is a Will? What is Probate? Let’s take them one at a time. A Will is a legal document that sets forth how your assets pass upon your death. The will appoints a fiduciary, known as the Executor. The executor submits the will to the Surrogate’s Court to prove the will is valid. This is all part of the standard probate process. Probate refers to the general administering of a deceased person’s will, but is also the term used for the legal process in which a will is reviewed to determine its validity and authenticity. Probate can be expensive, time-consuming, and take a long time to finalize. Therefore, it is best to utilize more optimal methods of asset transfer prior to one’s death. (If someone never created a will, their estate is handled through a process known as administration.)

2) Joint accounts

Joint accounts are another simple and easy method of asset transfer. Any property that is owned by joint title automatically passes to the surviving owner(s) without probate. It is common to see real estate, bank accounts, and brokerage accounts owned in this manner. When I see joint accounts, I breathe a sigh of relief knowing that some planning has been done. With that said, there are a few issues that deserve attention with joint titling:

  • If both owners pass at the same time, probate will NOT be avoided.
  • If one owner passes, the last surviving joint tenant must use another method to transfer assets.
  • If you own property by yourself, adding a joint tenant is essentially making a half-interest gift in the property.

3) A beneficiary designation

My favorite way for assets to transfer is through naming a beneficiary on bank accounts, brokerage accounts, IRAs, qualified retirement plans (e.g. 401(k), 403(b), 457 Plans), annuity contracts, or life insurance policies. A designated beneficiary inherits the funds when the account holder passes away after providing the institution with required documents like a death certificate. By having beneficiaries listed, probate can be avoided with the funds being received relatively quickly. While this method is the easiest and quickest way to transfer assets, it doesn’t provide any asset protection. Asset protection issues are primarily accomplished with creating a trust (discussed below).

I would highly recommend listing both a primary beneficiary and a contingent beneficiary. If not, at least name more than one primary beneficiary. A primary beneficiary is the person first in line to receive the assets of the deceased. More than one primary beneficiary can be named on an account. A contingent beneficiary is the beneficiary next-in-line to receive assets should the primary beneficiary be deceased, unable to be located, or refuses to accept the account proceeds (to disclaim). For married couples, typically their spouse is named as the primary beneficiary, with the children being named as contingent beneficiaries. 

Please note: Listed beneficiary designations supersede whoever is listed in your will so please ensure the beneficiaries listed are correct. If there is a discrepancy between your will and the beneficiary listed, the beneficiary will receive the funds! 

4) Trusts

A trust is a vehicle in which a grantor (trust creator) gives a trustee the right to hold title to property or assets for the benefit of a trust beneficiary. Both the trustee and the trust beneficiary can be the grantor themselves or a third party depending on the type of trust. Some of the many advantages in using trusts to hold assets include:

  • Protection against creditors
  • Protection against ex-spouses
  • Tax liability reduction
  • Professional management of the trust assets by the trustee
  • Probate avoidance
  • Provision of care for a disabled dependent

I intend to cover trusts in a lot more detail in the future, but for now, just know that the trust beneficiary supersedes all other methods of asset transfer for assets placed inside of a trust.   

In conclusion, there are four ways to transfer assets to loved ones – with each method having its own benefits and drawbacks. Therefore, it is important we ensure your assets go to the correct individuals by having the proper plan in place. Next month I intend to cover the basics of an estate plan with an actual estate attorney serving as a guest writer - so get excited for that (or as excited as one can get from estate planning)!

P.S. Here is my YouTube vid o’ the month!

P.S. Here is my track o’ the month!

P.S. Here is my read o’ the month!

With gratitude,

David Warshaw, CFP®