When a loved one passes away, one of the more challenging tasks can be managing the transfer of assets. Knowing what to expect and understanding the process is invaluable, especially when you're likely still grieving the loss.
Our goal is to guide you through the steps involved in transferring assets upon death. We'll focus on investment accounts, real estate, business interests, bank accounts and personal effects. We will leave the tax implications of such transfers to a separate article to avoid overcomplicating the process.
The first step is to obtain several certified copies of the death certificate, as virtually every transfer will require one. The next step is to determine whether the assets must go through the probate process.
What is probate, and how does it affect asset transfer?
Probate is a court-supervised process used to validate a will, settle debts and distribute the assets of a deceased person. It allows the decedent's wishes to be honored, creditors to be paid and beneficiaries to receive their due inheritances.
The steps in the probate process are the following:
- The person appointed to handle the estate, or executor, files the will and a petition to open probate with the probate court. If no will exists, the court will appoint an administrator.
- The court formally appoints the executor designated in the will or an administrator if there is no will.
- The executor or administrator compiles a detailed list of the deceased's assets with their estimated values.
- Outstanding debts and taxes are paid from the estate's assets.
- Any remaining assets get distributed to the beneficiaries as stipulated in the will – or by state law if no will exists.
The role of the executor or administrator is to manage the estate through the probate process. They might have to locate and secure assets, notify beneficiaries and creditors, pay debts and taxes, and distribute assets. Clear communication with beneficiaries is essential to avoid misunderstandings and to provide a smooth process.
Do all asset transfers require probate?
Not all assets have to go through the probate process. In general, non-probate transfers include:
- assets with designated beneficiaries
- jointly owned assets
- assets held in trust
Life insurance policies, annuity contracts and assets that have designated beneficiaries avoid probate. These include IRAs, 401(k)s and accounts with Payable on Death (POD) or Transfer on Death (TOD) designations. POD designations name beneficiaries and are used with bank accounts, U.S. savings bonds, stocks and bonds (whether held separately or in a brokerage account or mutual fund). Some states allow similar TOD designations on real estate and vehicles.
Jointly owned assets with rights of survivorship are passed to the surviving owner automatically without going through probate. Investments, real estate, bank accounts and vehicles can pass this way.
Trusts can also effectively avoid probate. The trustee manages the trust assets following the trust's terms and can distribute them to the beneficiaries without involving the court.
What are the various types of assets and their transfer methods?
Let's look at the various types of assets and the primary ways they can be transferred.
Investment accounts. Investment accounts can be transferred in various ways. Transferring accounts with POD designations is straightforward, as the named beneficiary can claim the assets without going through probate. It is best to contact the brokerage company to reregister stocks, bonds, mutual funds or money market funds. Taxable investment accounts without POD designations might need to go through probate unless they are held jointly. In that case, you should contact the brokerage company. For retirement accounts such as IRAs and 401(k)s, as the beneficiary, you must contact the financial institution and complete their required forms.
Real estate. Transferring real estate depends on how the property is titled. If held as Joint Tenancy with Right of Survivorship (JTWROS), it automatically passes to the surviving owner without probate, but the title must be cleared at the local property agency. For real estate titled solely in the name of the deceased, the transfer must go through probate unless it is in a trust. In a trust, the trustee handles the transfer according to the trust's terms. In states where TOD designations are valid, you must register the change of ownership wherever public land records are kept according to local requirements.
Business interests. How you transfer business interests depends on the type of business structure. Sole proprietorships are included in the estate and go through probate. Transferring partnerships, corporate shares and LLC memberships depends on the partnership agreement, corporate bylaws or operating agreement, respectively. Those documents typically outline the precise procedures for ownership transfer upon the death of a partner or shareholder.
Bank accounts. Jointly owned accounts usually pass automatically to the surviving account holder. If not jointly owned, bank accounts can be designated POD, which allows funds to be transferred directly to the named beneficiary without probate. It can be as simple as presenting yourself at the bank with your identification and a certified copy of the deceased's death certificate. Bank accounts with no POD designation will have to go through probate.
Personal effects. Personal effects can take various forms, each with its specific disposition. Jewelry, art and collectibles of value are often specified in the will and must be inventoried and appraised during probate. Household items might not be individually cited in the will, so the executor must manage their distribution based on the deceased's wishes or according to the law if no will exists. Digital assets – including online accounts and cryptocurrencies – require special knowledge of the deceased's digital estate plan.
What are your responsibilities as an inheritor?
Besides having multiple certified copies of death certificates, the asset transfer process is facilitated by readily available documentation, such as the will, trust documents and beneficiary forms. Relevant financial institutions and government agencies must be notified, and, where appropriate, any retitling or reregistering of assets must be done.
The executor or trustee will distribute the assets to the beneficiaries according to the will or trust instructions. It may involve liquidating investment accounts, retitling real estate and distributing personal effects. During this process, it is vital to adhere to legal requirements.
Does the state of residency affect asset transfer?
The state where the decedent lived will primarily dictate the probate process and the laws that govern asset transfer. Probate procedures vary by state, as do exemptions and requirements.
The inheritor's state can also affect the transfer process, particularly involving taxes. There may be reciprocal agreements between two states, simplifying the process. However, to avoid complications and possible penalties, it's essential to understand both states' specific rules and requirements.
Can planning ahead ease the asset transfer process?
Creating and updating estate planning documents ensures a smoother transfer process as they leave fewer unknowns. These documents include wills, trusts and beneficiary designations. Joint ownership arrangements can also simplify asset transfer, typically helping avoid probate.
Confusion and disputes can be kept to a minimum if estate plans are discussed with potential heirs and if documentation provides explicit instructions. Open communication helps everyone understand the process and their roles in it.
In summary, knowledge and planning can significantly minimize the burden of transferring assets after death. Thorough estate planning and clear communication with inheritors are key, particularly in more complex estates. Except in the most straightforward and modest situations, guidance from financial, legal and tax professionals can help ensure that the decedent's wishes are followed and that inheritors receive what was intended for them.
At WH Cornerstone, we work with clients to prepare for many of life's unexpected challenges. We call it Curve Ball Life Planning™. With asset transfers, we know that every situation is unique in terms of types of assets, goals, objectives, and state laws. We can be the most helpful by clarifying your specific situation and providing guidance on the transfer process, including task lists to guide you through the required administrative work.
For help with this process, schedule a call with us. We're here to help.