The “Pecking Order” of Asset Distribution at Death
February 29th, 2016 by beasleyferber
When it comes to distributing assets at death, all assets are not created equal. Most people believe that what you say in your will controls how your assets are handled when you die. However, this is a very common misconception, often leading to some unfortunate surprises. As I like to explain to clients, there is a “pecking order,” of asset distribution at death. Another way of thinking about it is to imagine a totem pole. At the very to of the totem pole are accounts with beneficiaries, such as life insurance or IRAs. No matter what your will says, these accounts go to the listed beneficiaries. I have seen many cases, for example, where a person gets divorced, but fails to remove their ex-spouse as a beneficiary of life insurance. When they die, the ex-spouse gets the money. Next on the totem pole are assets placed into a trust. These assets are distributed in the manner that is stated in the trust. Next on the totem pole are assets in joint name. These assets go to the other joint owner. At the bottom of the totem pole are assets in your own personal name, that do not have a beneficiary, are not in trust, pr are not joint. These are the probate assets; i.e., the assets that are probated, and go to the beneficiaries listed in your will.
Most of our clients have a mixture of all of the kinds of assets listed on the totem pole. In a properly planned estate, you would look at all of your assets, see where they fit on the totem pole, and make sure that the ultimate beneficiaries are as you want them to be. In our office, we are careful to this analysis with all of our clients.