In this final installment of my three-part intestacy series, I highlight two of the most overlooked asset-transferring mechanisms that can be used to bypass both the need to execute a will and the maze of intestate succession: beneficiary and joint ownership designations.

But first, I reiterate the importance of understanding how Tennessee law affects the property of Tennesseans who die without a will. As you may recall from October’s and November’s articles, Tennessee has default laws, known as intestacy laws, that govern the distribution of a deceased person’s assets if that person dies intestate, or without a will.

These laws were enacted to establish a predictable hierarchy for the next of kin, or heirs, who will inherit a percentage of their deceased relative’s assets based on their relationship to that deceased relative. However, as the definition of family evolves, there are increasingly more cases in which the people we’d most like to inherit from us are different than those who are entitled to inherit from us under Tennessee’s intestacy laws.

While I am a faithful fan of wills, I cannot stress enough how invaluable using (and maintaining) beneficiary designations and joint ownership designations can be. For many people, their most valuable assets are their house, bank account and retirement plan. As such, it makes financial sense to take advantage of transfer designations to ensure that ownership of these big-ticket items passes to your designee immediately upon your death.

Beneficiary Designations

Most financial accounts – bank accounts, certificates of deposit, insurance policies, investment accounts and retirement plans – allow their owners to formally designate a recipient – a beneficiary – to receive the account upon the owner’s death. Many accounts even allow the owner to designate multiple beneficiaries.

Typically, any asset with a beneficiary designation “passes outside of the deceased person’s estate” and immediately becomes the property of the beneficiary. Beneficiary designations enable the transfer of large sums of money with minimum question, hassle or expense.

Keep in mind, however, that designating a beneficiary is a contractual arrangement. Whomever you designate as your beneficiary will remain so until you formally change your beneficiary designation contract. For example, if you designate Spouse A as your beneficiary, then subsequently divorce from Spouse A and marry Spouse B, but fail to change the beneficiary designation form, Spouse A is still your beneficiary.

Designating, or re-designating, a beneficiary is often as simple as signing a few forms, so if you have any financial accounts, it’s a good idea to consider adding a beneficiary.

Joint Ownership

Similar to beneficiary designations, joint ownership of assets also empowers you to designate the recipients of your assets. Joint ownership designations are usually available for bank accounts, real estate and certain personal property, such as cars.

For bank accounts, both joint owners own, and therefore can use, the entire bank account. Upon the death of one of the owners, the bank account immediately becomes the sole property of the other joint owner.

This is a great way to transfer ownership of a bank account, but remember, because the other joint owner can legally use the bank account while you are still living, there aren’t any restrictions on when and how much of the account they can spend. If you want to limit your recipient to using the account only until after you’ve died, a “pay-on-death” or “POD” beneficiary designation is your better option.

Similarly, a joint ownership designation can be added to real estate through the execution of a joint ownership deed. Joint ownership deeds can take several forms. Under most joint ownership, or “joint tenancy” deeds, two or more individuals own a percentage of real estate pursuant to the terms of the deed.

In order to have the real estate transfer automatically to your other joint tenant upon your death, your joint tenancy deed must include the phrase “with right of survivorship.” This phrase signals to the world that, like a joint bank account, in the event that one joint owner dies, the other joint owner becomes the sole owner of the entire property.

As with most legal documents, precision is key when drafting a deed. It’s good practice to have an experienced attorney who can draft your deed to ensure that it uses all of the necessary language, and who understands and can advise you on the legal and tax consequences of making such transfers.

The Takeaway

An effective understanding and application of the laws and rules governing estate planning can have a major impact on how and to what extent you can benefit your loved ones after you die. In next month’s article, I’ll examine how to effectively incorporate your financial accounts into your estate planning. To do that, I will be interviewing my friend and financial adviser, Jamie Cochran, CFP, of Summit Wealth Group.

These articles are purely informational and do not constitute legal advice. As with all legal issues, please consult your attorney when determining your estate planning needs.