Three Ways Assets are Transferred at Death

An integral part of the estate planning process is reviewing how assets are titled and beneficiary designations. It doesn’t matter how well written your will or trust is if these estate planning documents do not coordinate with the titling of your asset holdings.

In Tennessee and most other states there are three general ways assets pass at death: 1) rights of survivorship, 2) beneficiary designation, or 3) probate.

Rights of survivorship property is property jointly held between two or more individuals. At death, the decedent owner’s interest immediately vests in the surviving owner(s) by operation of law. How such jointly-held property is titled will set forth inheritance rights, not the terms of the deceased owner’s will or other estate-planning documents.

The second way assets can pass at death is beneficiary designation. This is common on life insurance, retirement accounts, and other brokerage accounts which permit account owners to make payable-on-death (POD)/transfer-on-death (TOD) designations. TOD/POD accounts will pay out according to the terms of the beneficiary designation made by the deceased account holder. As with jointly-held property with rights of survivorship, inheritance rights for TOD/POD property are not governed by the deceased owner’s will or other estate planning documents unless they fail to name a beneficiary designation or they intentionally name their estate as the beneficiary.

Property held in a revocable living trust instrument is treated similar to TOD/POD property when the trust instrument specifies where assets are to be distributed at the death the person who established the trust.

The third and final way property passes is through probate. Assets that pass through probate are individually titled assets that do not have a POD/TOD beneficiary designations or jointly held assets without rights of survivorship. In Tennessee such jointly held property is called tenancy by the entirety property.

POD/TOD property will pass through probate if no beneficiary designation is made by the account owner or the estate is named as the beneficiary.

Probate property is distributed according to the terms of the decedent’s will or by Tennessee’s intestacy laws if the decedent died without a valid will.

Having a legally binding will or trust instrument in place is only one piece of the estate-planning process. Make sure you discuss with your estate-planning attorney how assets should be titled and beneficiary designations named to make maximum use of your estate-planning documents and to ensure your goals and desires are ultimately carried out.

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