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"Property That Passes According to State Laws"



Section 2: "Property That Passes According to State Laws"

Certain types of property pass according to state laws regardless of what your Last Will And Testament says. There are five main types:

     1. Life Insurance, Retirement Accounts, and Other Matters Where A Beneficiary Is Named.
     2. Joint Bank Accounts.
     3. Homes, Land, and Real Estate.
        a. Tenancy By The Entirety.
        b. Joint Tenancy With Right of Survivorship.
        c. Life Estates.
     4. Elective Share and Dower Interest.
     5. Items Not Stated In Your Will.

1. Life Insurance, Retirement Accounts, and Other Matters Where A Beneficiary Is Named.

Wills do not change who is to receive benefits from your life insurance policy, retirement account, or any other matter where you name a beneficiary. The benefits will be paid to whomever you named as beneficiary. If you name "X" as the beneficiary on your life insurance policy, but say in your Will that "Y" is to receive the insurance money, then "X" gets the money.

By the same token, if you do not name a beneficiary or you name your estate as beneficiary, then the benefits will be paid to your estate and distributed to your heirs as part of your estate. If you name your estate as the beneficiary on your life insurance policy, but say in your Will that "Y" is to receive the insurance money, then "Y" gets the money.

I like to call people's attention to this matter because a lot of people do not realize how it affects their estates. I have seen a number of cases where a person names a son, daughter, niece or nephew as beneficiary on life insurance and told the beneficiary to use the money for burial expenses and the beneficiary agreed. The person died and the money was used to pay for the funeral and burial. Then, in the probating of the estate, the beneficiary finds out that the insurance money "was really his or her money" and that he or she could file a claim against the estate for the funeral and burial bills. The beneficiary then files the claim against the estate.

Take the case of Mary. Mary named her daughter, Cathy, as beneficiary on her life insurance policy. Mary told Cathy that she did this so that Cathy would have access to the money so that she could pay Mary's funeral bill. Cathy agreed. Cathy knew that she was supposed to pay the funeral bill with the insurance money, and when Mary died, Cathy paid the funeral bill. When Cathy went to the Probate Court, she was informed that the insurance money was really her money and that she did not have to pay the funeral bill with the money. She was also told that she could file a claim against Mary's estate for the amount of the funeral bill. She filed the claim and was reimbursed the funeral bill before any of the other heirs (Mary's other children) received anything.

When I have told this case to some clients, they have either changed the beneficiary on their life insurance to name their estate as beneficiary or they have changed their Will.

2. Joint Bank Accounts.

When a bank account, checking or savings, is in your name only, the bank account is part of your estate and is distributed to the heirs of your estate. However, if a bank account is a joint account, that is, the account is in your name and another person's name, then it may or may not be part of your estate. States have various laws dealing with joint bank accounts. In some states, the bank account is part of the estate and distributed to the heirs. In other states, joint bank accounts are deemed to belong to the survivor whose name is also on the account. In some states, the bank account passes to the survivor, but the estate is given an opportunity in Court to show that the account was really a matter of convenience and that the money is actually part of the estate.

Generally, when a husband and wife have a joint account, there is not a problem because the surviving husband or wife is going to receive the money anyway. However, I have seen cases in my state where an older person has a son, daughter, niece, or nephew named on a joint account so that the younger person can help the older person with paying bills, etc. The older person thinks that whatever is in the account when he or she dies will be distributed to his or her heirs. The older person is surprised to learn that it does not work that way and that his or her heirs will not receive the money in the account.

I have also seen problems created among children when one child is named on a joint account so that he or she could help a parent. The parent died and the child got the money in the account. The other children then became angry because they felt that the one child had unfairly or even illegally taken the money in the account. They were surprised when I told them that that is our state law that money in a joint account is deemed to belong to the survivor unless specific language is used when the joint account is set up and that the specific language is almost never used.

Please remember that states handle joint accounts differently. If you have a joint account with someone other than the person whom you want to have the money upon your death, talk with an attorney licensed in your state to see who will receive the money in the account upon your death.

3. Homes, Land, and Real Estate.

I do not want to get technical, so let me simply say that, in the United States, we have several "types" of ownership of real estate. Each "type" of ownership has an effect on who will receive your real estate when you die. Three "types" are most important because they say who will receive your real estate when you die regardless of what your Will says.

a. Tenancy By The Entirety.

Some states, not all, enforce the common law "type" of ownership known as Tenancy By The Entirety. Tenancy By The Entirety says that when real estate (home, land, etc.) is conveyed to a married person, it is actually owned by both the husband and wife jointly and upon the death of either person, the real estate passes to the survivor. For example, if husband "H" buys a parcel of land and the Deed has only his name on it, the land is still deemed by state law to belong to both husband "H" and wife "W".

This is critically important for two reasons. The best way to explain them is to give you two examples.

First, let's assume that a married person has bought a house and two separate parcels of land over the years and has only his or her name on all of the deeds. The person decides to leave the home to his or her spouse so that the spouse will have somewhere to live. The person decides to leave a parcel of land to each of his or her children so that they will have somewhere to build a home or put a mobile home. The person makes a Will giving the house to the spouse and the lands to the children. After all, only the person's name was on the Deeds and he or she paid all of the taxes. It is his or her's to give away. Right? Wrong. In states that enforce Tenancy By The Entirety, the house and land, all, pass to the spouse. The children do not receive any of the real estate and there is nothing that the person can do about it.

So, the point is that if you are married and you wish to leave real estate to someone other than your spouse, you need to check with a lawyer licensed in your state to see if you can, in fact, leave the real estate to someone other than your spouse.

Second, let's assume that you are single and own a home. You have decided that you want to leave the home to your married child. The only problem is that you do not really like your child's husband or wife. So you make your Will leaving your house to your child only. You die and your home passes to your child so that your child can do whatever he or she wants to do with the house. Right? Wrong. In states that enforce Tenancy By The Entirety, your child's spouse is deemed to be a joint owner and receives one half of the real estate regardless of what your Will says.

This is exactly what happened when my Dad made his Will. He left his home to my sisters and me, but it actually passed to my sisters, their husbands, me, and my wife. We all had to sign the Deed when we sold my Dad's home. We all get along real good so there was not a problem. But what if we didn't get along?

The point is that if you are single and you want to leave real estate to a person who is married to someone that you do not want to have an interest in the real estate, contact a lawyer licensed in your state.

b. Joint Tenancy With Right of Survivorship.

Unlike Tenancy By The Entirety which is enforced by state laws whether you like it or not, Joint Tenancy With Right of Survivorship is a "type" of ownership you can chose. With Joint Tenancy With Right of Survivorship, real estate is owned by two or more persons and the real estate passes to the survivor(s) upon the death of one of the owners regardless of what the owner's Will says. The owners do not need to be married in order to own real estate as Joint Tenants With Right of Survivorship.

Suppose that you own a house with your brother or sister as Joint Tenants With Right of Survivorship. You decide that you want to leave your interest in the house to your spouse and you make your Will with that provision. When you die, the house passes to your brother or sister who owns the house with you instead of your spouse. What your Will says does not make a difference.

On the other hand, suppose that you own a house with your brother or sister as Joint Tenants With Right of Survivorship. You decide that you want to leave your interest in the house to your brother or sister with whom you own the house. You do not need to make a Will stating this because the house will pass to your brother or sister anyway upon your death.

c. Life Estate.

With a Life Estate "type" of ownership, a person owns real estate only as long as he or she is alive. Upon his or her death, the real estate passes to the persons owning the Remainder Interest. Life Estates effect Wills in two ways.

First, if you own a Life Estate in a house, you cannot devise or give your Life Estate ownership to your heirs because your ownership ends at your death.

Second, if you own a house and you want to leave it to your child so that your child can live in the house as long as he or she is alive, but then give the house to your grandchildren, you would use a Life Estate. In your Will, you would give your child a Life Estate in the house and give the Remainder Interest to your grandchildren. Upon the death of your child, the house would pass automatically to your grandchildren.

4. Elective Share and Dower Interest.

Most states recognize that it may not be fair to allow a person to "disinherit" his or her spouse. To protect the spouse, many states provide for Elective Share, Dower Interest, or some form of these laws. What these laws say is that, if your spouse is not named in your Will or does not receive a certain portion of your estate, your spouse will either automatically receive part of your estate or at least be able to file for a portion of your estate.

Suppose that for whatever reason you do not want to leave anything to your spouse. You make your Will leaving everything to your children. Depending on the state law in effect, your spouse will receive part of your estate, or be able to file for part of your estate, regardless of what your Will says.

If you feel that you do not want to leave anything to your spouse, you need to talk with a lawyer licensed in your state to see how your state handles this matter.

5. Items Not Stated In Your Will.

This sounds so obvious, but some people do not realize that it happens. If your Will does not state something in either specific or general terms, it is not covered by your Will.

For example, let's say that you are single. You have three parcels of land that you own in full by yourself. You decide to make a Will leaving one parcel to one child and another parcel to another child. Your Will does not mention the third parcel of land and your Will does not have a Residuary Clause. The third parcel of land is not covered by your Will. It cannot pass according to your Will because it is not mentioned and no one knows what you want. The third parcel will pass to your heirs according to state laws.

This does not mean that you have to mention everything in your Will. That would be impossible because you are acquiring and disposing of different property all of the time. However, as you will see later in this book, we use a Residuary Clause to prevent gaps in your Will.

This ebook is for general information only and may not be applicable to your situation. Talk with a lawyer licensed in your state.

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