Your Money, Your Belongings and Your Home After Death – Part I
How Does Property Transfer at Death?
Estate planning is the process of organizing your estate to provide security for yourself and to reflect your wishes as to the transfer of your property at death. The plan you execute, or, your decision not to execute a plan, determines how your money, your belongings and your home will transfer at death.
An estate consists of assets as well as your debts and encumbrances. The focus of this article is your assets, also known as your property. In the context of estate planning, property is given a specific meaning. “Property is either: real or immovable; or, personal or movable.” (Property, BLD, 6th ed. 1992). Real Property includes land and whatever is built on the land and structures that are affixed to the land that are not easily moved.
Personal property is property which is not real property, or what we normally think of as real estate. Personal property is further divided into two categories; tangible personal property and intangible personal property. Tangible personal property is what we typically think of when we see the words personal property; our “stuff” such as furniture, vehicles, tools, antiques, artwork, and electronic equipment. In other words, what we can see, touch and physically use.
Intangible personal property includes, but is not limited to, the assets we have in our bank account(s), investments, stocks, bonds, retirement accounts, and insurance policies. In short, intangible personal property is what we think of as our “money.” Note that cash, in your wallet or under your mattress, falls into the tangible personal property category because we can hold it and use it immediately.
Estate planning requires that you first identify your property: real and personal, tangible and intangible. Your estate plan directs how property will transfer at your death. There are different ways to arrange for this transfer of property. A Will, or other testamentary document, is one way to direct the transfer of a particular type of property. Also, you may transfer property held at a financial institution by creating particular designations for who is to receive this property. These arrangements are separate from your Will. Your home, or any real property you own, is held by deed. The name or names on the deed identify ownership, and may control how this property is transferred. This type of property transfer is separate from your Will and is yet another method for how an asset, your real property, may be transferred at your death.
How does your property pass at death? It depends on the plans you put in place during your lifetime. These plans, embodied in testamentary documents (your Will), financial planning, and ownership by deed, direct how property is transferred at your death. What if you do not have a plan for the transfer of your property?
In terms of Estate Administration – which is the process for transferring your assets after your death – your property (as previously defined in this article) is divided into two categories. It is considered either probate property or non-probate property. Probate property is that which is transferred according to the directions in your Will, or other testamentary document (a testamentary document is a document that you have written and properly executed before death, but which does not take effect until after death).
If you have not executed a Will or other testamentary document, at your death, you are considered to have died intestate, which means simply that you did not make a Will before you died. If you die intestate, the intestacy laws will direct the transfer of your probate property. Typically, it is the intestacy laws of the state in which you had primary residence at the time of your death that control. If you are a resident of Pennsylvania at the time of your death, most likely it is the Pennsylvania Intestacy Law that will direct the transfer of probate property that is not transferred by an effective estate plan.
In Pennsylvania, if you do not create an estate plan, know that (at least with regard to your probate property) a plan has been created for you. The Pennsylvania law, 20 Pa.C.S.A. Ch. 21 refers to Intestate Succession. This Chapter of the Pennsylvania Statutes, the Decedents, Estates and Fiduciaries (also known as “DEF”) Code, details how your probate assets will transfer at your death if you have not provided for the transfer of your probate property effectively within a testamentary document.
The Intestacy law directs the distribution of probate property to your next of kin. Probate property can be real property or personal property (as defined earlier in this article). Probate property can be your money, your belongings and your home. Probate property is property titled in your name, where you are the sole title holder of the property.
Property held in financial institutions may be probate property if it is titled in your name alone. However, this asset will not be considered probate property if you have created a beneficiary designation. A beneficiary designation is created when you designate, in writing, with the financial institution that another person or persons is to receive this property at your death. Be aware that if the person you have designated as a beneficiary predeceases you, then the property will become probate property, unless you have designated a second beneficiary, and this second beneficiary survives you.
This is why it is crucial to know how your property is titled and designated. It is necessary to review and revise this information if your beneficiary designees predecease you or if your wishes have changed as to whom you would like to be the recipient of the property. If you do not have a beneficiary designation for property held with a financial institution, this property will be transferred as probate property either via your Will or testamentary document or via the intestacy laws.
Bank accounts may be probate property. If the bank account is only in your name, then it may be probate property. However, if the bank account is payable on death to another person or persons, it is not probate property, as long as the person to whom it is payable survives you. Also, if the bank account is held jointly, it may or may not be probate property. It depends on the type of joint ownership, and if the joint owner has survived you. If you do not have a payable on death bank account or if the joint bank account holder has predeceased you, the bank account may be transferred as probate property either via your testamentary document or via the intestacy laws.
It is a good idea to review your bank accounts to confirm how they are titled and if they are payable on death accounts. Review the financial accounts and confirm if there are beneficiary designations with these accounts and if these arrangements still reflect your wishes and are the best planning based on the current laws.
Property that you give to another may become probate property if this transfer of property occurs within a year of your death. This transfer of property includes a gift of money to another that is over a certain dollar amount.
Probate property includes an inheritance that you receive from another. If this inheritance is received after your death, it is considered probate property and will be treated as such.
A Will is a core part of your estate plan. The intestacy laws are the provisions that are followed when you have probate property at the time of your death but you do not have a legally effective testamentary document in place.
This article has focused on how your money transfers at death. My next article will continue this review of property transfer at death with a focus on your belongings and your home. Each of these three categories of property – money, belongings, and your home (any real property) must be considered when creating or reviewing your plan.
Estate planning is the process of organizing your estate to provide security for yourself and to reflect your wishes as to the transfer of your property at death. These plans are subject to the various regulations, rules and laws in effect at the time of your death, which may change, and therefore periodic review of your plan is advisable.