How Is Your Estate Administered When You Pass Away?
When an individual passes away, the assets owned by the decedent may be administered and distributed in a number of ways, depending upon the type of asset and the manner in which it was owned. The following is a general summary of this process:
Assets with a Beneficiary Designation or Right of Survivorship
Assets with a beneficiary designation, such as Retirement Accounts and Life Insurance policies are typically paid directly to the beneficiary named by the decedent on the account beneficiary designation form. These assets are not subject to probate and is handled outside of the court system. The administrator of the account will contact the beneficiary, who will complete a claim form, and the assets will be transferred to the beneficiary. It is very important to make sure that the beneficiaries or family members are aware of the accounts or insurance policies you have in place.
Bank accounts or investment accounts may have a Transfer on Death Designation (TOD), or Payable on Death Designation (POD), which also provides that the assets will be paid or transferred to the designated beneficiary when the account owner passes away.
Certain accounts or assets may be jointly owned by two or more people (usually husband and wife), which pass by right of survivorship. This may include real estate, vehicles, or other accounts or assets. The ownership may be characterized as joint tenants with right of survivorship (JTWROS), tenancy by the entirety, or simply as John and Jane Smith, husband and wife. These designations provide that the surviving co-owner will become the sole owner of the property.
The foregoing types of ownership all typically pass to the designated beneficiary and are not subject to probate. It is also important to keep in mind that these designations control over the provisions set forth in an individual’s Will or Trust. For instance, if the Will states that all property is to be distributed to the decedent’s child, but the retirement account lists the decedent’s wife as the beneficiary of the account, the retirement account will be distributed to the decedent’s wife.
Assets without a Beneficiary Designation
Assets that do not have a beneficiary designation, or are not co-owned by right of survivorship, will be distributed pursuant to the terms of the decedent’s Last Will & Testament, Revocable Living Trust, or pursuant to state law. These assets typically include assets that are solely owned by an individual, including bank accounts, cars, investment accounts, or real estate.
Last Will & Testament
Assets solely owned by an individual, or jointly owned as tenants in common without a right of survivorship, will be distributed pursuant to the terms of decedent’s Last Will & Testament, if the decedent left a Will. For instance, if the decedent provided that all of his assets are to be distributed equally between his children, the Executor will be in charge of distributing the assets to the decedent’s children who are named as beneficiaries under the Will. This is typically done through a probate administration process governed by the Courts and takes approximately six months to a year to complete. If the total value of the decedent’s assets are minimal, the property may be subject to distribution through an informal probate process or pursuant to an Affidavit of Distribution.
Revocable Living Trust
If the decedent had a Revocable Living Trust, the assets owned by the trust will be administered and distributed by the Successor Trustee named in the trust, in accordance with the terms of the trust. The trust is usually administered without court involvement when the decedent passes away, which may be beneficial in avoiding the probate process and reducing administration costs.
If the decedent did not have a Will or Trust (known as passing away intestate), state law provides how the assets of the individual will be distributed. The manner of distribution varies from state to state, but usually provides that the assets will be distributed between spouses and/or children.
In Wyoming, one-half of the decedent’s assets will be distributed to the decedent’s wife and one-half will be distributed equally between the decedent’s children. If the decedent was not married, the assets will be distributed equally between the decedent’s children. If the decedent was married but did not have any descendants, the assets will be distributed to the decedent’s wife. If the decedent was not married and did not have descendants, the assets will be distributed between the decedent’s parents and siblings.
The process of distributing the assets is typically governed by the probate court process and an Executor/Administrator, usually next of kin, will be appointed to administer and distribute the estate.
If a decedent was married, most states provide that the spouse is entitled to a portion of the decedent’s estate, regardless of what the decedent’s Will provides, unless a valid prenuptial agreement is in place. If the decedent left everything to his or her children, family members, or friends and did not leave any assets to his or her spouse (or left very little to the surviving spouse), the surviving spouse may elect to receive a portion of the decedent’s assets. This is called an elective share, and can be up to half of the decedent’s estate, but could be more or less, depending upon the circumstances.