The title of this blog seems clear: A will only deals with a deceased person’s money. But what exactly does this mean? Is a retirement plan such as an IRA a deceased person’s money? How about a life insurance policy owned by the deceased individual?
The term “estate” means many things, though the term essentially means “property”. Real estate is often referred to as real property by attorneys. The “gross estate” means all property owned by the deceased person for taxation purposes, meaning everything they have control over (including life insurance, some joint property, and retirement plans). However, the “Probate Estate” is only property that passes through probate.
Probate proceedings do not distribute funds paid outside of probate. Life insurance and retirement plans have beneficiaries, so we know where they go when someone passes away. Joint property passes to the surviving account owner, so we know who receives it when one owner passes away. Transfer on “death” and “in trust for” accounts go to a named beneficiary upon the death of the original account owner, so…those have a clear destination when when the owner passes away.
If you are paying attention, you can see that a will only transfers money that doesn’t have a clear destination when the owner of the will passes away, such as a solely-owned bank account.. If we know where something goes it is not a deceased person’s money upon their death for probate purposes. Even though the IRS states it is, the fact that property may or may not be taxable is irrelevant as to how it passes to another individual.
The sole exception is when a beneficiary to an account is listed as “my estate”. In this case, this means the person is leaving the property to their own probate estate. I have blogged almost 10 times as to why leaving these types of assets to your estate is a terrible idea, so hopefully you’ve removed this from your beneficiary forms.
In summation: If we know where the funds go upon your passing away, then those funds do not pass through your probate estate. Any money that is left over is considered a “dead person’s money”, and passes to your will.
Q FOR U: When was the last time you reviewed your beneficiary designation forms for your life insurance and retirement plans?
