August 14, 2009

Nonprobate Transfers

Certain types of property are not governed by a will. This is particularly important because many people mistakenly believe that property mentioned in a will automatically goes to the named beneficiary in the will. However, this is not the case in the following instances because on death, the property will pass outside of the will and thus probate regardless of what the will dictates.

1. Property held in joint tenancy

Joint tenancy is a form of co-ownership in which two or more persons own property in equal undivided interests. CC §683. For example, a deed which indicates joint tenancy would state, hypothetically, “John Smith and Mary Smith as joint tenants, with right of survivorship." Consequently, a deceased joint tenant's interest vests in the surviving joint tenant or tenants at the moment of death without requiring probate administration. CC §683.2(c). Thus, upon John Smith’s death, his interest would vest with Mary Smith regardless of what John Smith’s will states. 

2. Property held as community property with right of survivorship

This is another method of holding a house jointly between spouses or partners. CC 682.1. The rules that govern joint tenancy also govern community property with right of survivorship. Thus, either method of titling your house would produce the same result in terms of falling outside the scope of a will, namely the survivor would receive the other share of the house.

3. Payable on death bank account (POD)

A POD bank account is an account in which the holder designates a beneficiary as the recipient of the holder’s account upon the holder’s death. Prob C §5140. For example, if John Smith had a bank account and designated his wife as the POD beneficiary, it would typically goes as follows “this account or certificate is owned by John Smith. On the death of John Smith, ownership passes to the named pay-on-death payee, Mary Smith.” Prob C §5203(a)(2) Upon a showing of the holder’s death certificate, the bank will issue a check to the named beneficiary.

4. Totten trusts

A Totten trust bank account is an account in the name of one or more parties as trustee for one or more beneficiaries. Prob C §80. For example, a bank account titled “John Smith, Trustee for Mary Smith” is usually sufficient to create a Totten trust account. The assets in the account belong to the beneficiary, Mary Smith, on the death of the trustee John Smith. Prob C §5302(c). Once again, upon a showing of the trustor’s death certificate, the bank will issue a check to the named trustee. The name Totten trust gets its name from the case in which it was created, In Re Totten, 179 NY 112 (1904).

5. Joint tenancy bank account

Similar to a house held in joint tenancy, in that sums remaining on deposit in a joint account at the death of a joint account holder, belong to the surviving holder and not the estate unless there is clear and convincing evidence of a different intent. Prob C §5600. For example, if the bank account was held as “John Smith and Mary Smith” and John Smith dies, Mary Smith would be recipient of the remaining amount in the account upon a showing of John Smith’s death certificate.

6. Transfer on death securities

Akin to POD bank accounts, a stockholder may designate a beneficiary as the recipient of the stockholder’s stock upon the death of the stockholder. Prob C §§5501-5512. For example, if John Smith held General Electric stock and wanted to transfer it on death to Mary Smith, it would read “John Smith, owner of 1,000 shares of General Electric common stock, transfer on death to Mary Smith.” Prob C §5505. Again, the death certificate would need to be provided before a transfer is made.

7. Life insurance

The named beneficiary of a life insurance policy is entitled to the proceeds of such policy by virtue of the beneficiary designation on the life insurance policy and not by virtue of the decedent's will. Prob C §5000(a). For example, if Mary Smith took out a life insurance policy on John Smith’s life, she would receive the proceeds of such upon John Smith’s death, provided she showed the life insurance company John Smith’s death certificate.

8. Revocable trusts

Property titled in the name of the trustee of the drafter's revocable trust is not subject to probate provided the trust property is left to a beneficiary other than the trust's drafter. Prob C §13050(a)(1). For example, John and Mary Smith create the Smith 2009 Revocable Trust and transfer their home into the trust. The surviving spouse inherits everything and the Smith's close friend Peter is the remainder beneficiary. Upon the surviving spouse's death, Peter would inherit the property free of probate administration but not trust administration.