If a person dies without a will or trust, single ownership property still passes under the probate process. But in this situation, it passes according to “intestacy”, the state law that dictates where property passes if a person dies without a will (and if the property does not pass through some other means, such as by survivorship). In general property passes first to a surviving spouse, then to children, then to parents, and so on.
Different kinds of property and ownership arrangements result in different ways in which that property is transferred upon an owner’s death.
Single ownership – This is the way most people think of owning a property. A person holds title to an asset (a bank account, for instance) in his or her name. The person can do whatever he or she wants to do with the property. Note that this category does not include retirement plans or life insurance, which have special features.
Tenancy in common – A type of ownership in which a co-owner can pass on their interest at their death in the manner they choose. For example, if person A and person B own a real property as tenants in common, person A can pass on his or her interest to whomever he or she chooses through a will, and person B has no say over where that interest goes. However, a co-owner often cannot dispose of his or her fractional interest during his or her life without the consent of the other co-owner.
Right of survivorship – Refer to property that is co-owned with another person and cannot be separately disposed of at death, rather, the deceased co-owner’s interest passes automatically to the other co-owner (commonly known as joint tenancy with right of survivorship “JTWROS”)
Trust – A trust is a legal arrangement involving three parties; the person creating the trust (the grantor, trustor, or settlor), the person who owns legal title to the property (the trustee), and the person for whom the trust is administered (the beneficiary). The grantor gives legal title of assets to the trustee, who in turn agrees to administer the property in accordance with the terms of the trust agreement. This means that the administration and disposition of the property is governed not simply by who owns the property but also by the trust agreement.
Beneficiary designation – This is property that is owned by one person and passes at death, not by will but by beneficiary designation. Properties that pass by beneficiary designation include:
Life insurance policies
Individual retirement accounts (IRAs)
Certain types of employment benefits including stock options and deferred compensation
When the owner of a beneficiary designation property establishes ownership, he or she is asked to fill out a beneficiary designation form, naming the beneficiaries who are to receive the property in the event of the owner’s death. If the owner fails to fill out a beneficiary designation, the property passes according to the document establishing the property (typically, the property passes under the person’s will).
Community property – Certain state are “community property” states, which means generally that any property acquired through your earnings while you’re married is owned half by you and half by your spouse. Property acquired before the marriage or by gift during the marriage is typically referred to as “separate property”. Community property can be converted to separate property, and vice versa, by using a “community property agreement” signed by both spouses. Community property can affect other types of property ownership. For example, a husband acquires a life insurance policy while he is married and he names his daughter as the beneficiary. His wife owns one-half of the insurance policy, so even though his daughter is the sole beneficiary, she is only entitled to half the death benefit, while his wife is entitled to the other half.
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