Non-Probate Transfers Flashcards
definition
NON-PROBATE TRANSFERS
= assets that pass at decedent’s death outside the terms of the will and outside probate administration process
definition
WILL SUBSTITUTES
non-probate assets are recognized by law
7 examples
WILL SUBSTITUTES
- Life insurance
- Joint tenancies or tenancies by the entirety
- Inter vivos trust
- Bank arrangements
- Deeds
- Contracts
- Inter vivos gifts (including gifts causa mortis)
key inquiries
NON-PROBATE TRANSFERS
- Does the subsidiary law of wills apply to non-probate transfers?
- Can the beneficiary of a non-probate asset be changed by will?
joint assets with right of survivorship
WILL SUBSTITUTES
assets held by the decedent and someone else in right of survivorship
example = joint bank account
life insurance proceeds
WILL SUBSTITUTES
controlled at death by beneficiary designation of policy
2 types
BANK/BROKERAGE ACCOUNTS IN BENEFICIARY FORM
- POD
2. TOD
POD
BANK/BROKERAGE ACCOUNTS IN BENEFICIARY FORM
= bank accounts payable on death
TOD
BANK/BROKERAGE ACCOUNTS IN BENEFICIARY FORM
= brokerage accounts transferrable on death
distinction from joint bank account
BANK/BROKERAGE ACCOUNTS IN BENEFICIARY FORM
Joint bank account = both account owners can access the money
POD account = only the depositor can access the account while alive, only beneficiary can access account only once depositor dies and designation takes effect
revocable living trust
WILL SUBSTITUTES
- used by attorneys to effectuate non-probate transfers to clients
- puts assets in revocable trust before death with instructions to pass at death
inter vivos trust
WILL SUBSTITUTES
= trusts created during settlor’s lifetime
gifts causa mortis
WILL SUBSTITUTES
= gifts made in contemplation of death
general use
WILL SUBSTITUTES
Individuals wishing to avoid taxes and to eliminate the cost and inconvenience of probate often turn to various “will substitutes” to transfer their property upon death
common issue
WILL SUBSTITUTES
- Frequently, the decedent’s testate or intestate takers argue (usually unsuccessfully) that these forms of transfer constitute “testamentary” transfers
- Therefore invalid for failure to comply with the required formalities for execution of a will
(Usually an unsuccessful argument)
life insurance
WILL SUBSTITUTES
(probably the most widely used will substitute)
- clearly has testamentary effect in the sense that economic interest will pass at death from T
- NEVERTHELESS it is not a “will,” and the designation of beneficiary does not have to be attested by witnesses
- Rather, courts have held that a life insurance policy is a CONTRACT, and the disposition is governed by the terms of the contract
change of beneficiaries
LIFE INSURANCE POLICIES
most life insurance policies provide that a change of beneficiaries can be effected by the owner only by notification to the company during owner’s life
= a will cannot change the beneficiary designation, unless the terms of the contract permit this
types
BANK ARRANGEMENTS
- totten trusts
- joint or survivor accounts
- PODs/TODs
joint or survivor accounts
BANK ARRANGEMENTS
= deposit of money in a bank in the names of two persons “with right of survivorship” is generally held effective to give the survivor the ABSOLUTE right to ALL of the money
extrinsic evidence
JOINT OR SURVIVOR ACCOUNTS
in many states, extrinsic evidence is admissible to show
- that the dead depositor did not intend a gift to the survivor and
- that the account was only a convenience for paying the depositor’s bills
survivor is not spouse
JOINT OR SURVIVOR ACCOUNTS
where the survivor is not the spouse but someone else, this issue has been frequently litigated
majority rule
PAYABLE ON DEATH DESIGNATIONS
many courts have held a POD designation on a bank account ineffective
majority rule rationale
PAYABLE ON DEATH DESIGNATIONS
no interest of any type is transferred to the designated beneficiary during the depositor’s lifetime
(hence the unattested designation violates the Statute of Wills)
majority rule reception
PAYABLE ON DEATH DESIGNATIONS
= criticized by many authorities
(on the ground that a Totten trust is distinguishable from a P.O.D. designation only by the fact that the depositor has recited that he holds the deposit “in trust” and yet the Totten trust device is upheld)
upc response
PAYABLE ON DEATH DESIGNATIONS
a number of states and UPC have enacted statutes specifically permitting POD accounts as valid will substitutes
2 types of deeds
WILL SUBSTITUTES
- delivery upon death
2. delivery actually made
delivery upon death
DEEDS
a deed that is
1. deposited in escrow
2. with delivery conditioned upon the grantor’s death
= may be a valid nontestamentary transfer
delivery actually made
DEEDS
a deed that is by its terms effective only upon the grantor’s death
- has actually been delivered to the grantee
= a court may sustain the transfer as nontestamentary
by construing the deed
- as a present transfer of a future interest
- subject to a life estate reserved in the grantor
contracts
WILL SUBSTITUTES
A contract that purports to dispose of property upon death
- is testamentary in nature AND
- must comply with the formalities required for a will in order to be enforceable
revocable trusts
WILL SUBSTITUTES
= interest passes during life but becomes possessory at death
pour-over
REVOCABLE TRUSTS
(from will to revocable trust)
- Trust may be established before, after, or concurrently with will
- Trust may be amendable and revocable
- Gift is valid even if trust unfunded during the settlor’s lifetime
contingent beneficiary trust
LIFE INSURANCE TRUSTS
ALLOWED
Example = “proceeds to A, but if A does not survive, to B in trust for my children”
assignment of policy trust
LIFE INSURANCE TRUSTS
ALLOWED
= assign policy to part to hold in trust
applicable law
EXAM INSTRUCTIONS
- wills = tn (compare to UTC)
intestacy = tn (compare to UTC) - trusts = UTC (or majority if UTC silent)
- non-probate transfers = majority
- powers of appointment = majority
- uniform prudent investment act = adopted by tn
- uniform principle and income act = adopted by tn
