If a loved one dies and the Last Will says you get everything, why were you disinherited? The most common reason for you to be disinherited is because the assets were transferred to someone else by operation of law.
Operation of Law
Operation of law means that the asset passes to the beneficiary automatically upon death. This happens before the Last Will is read, or the Trust is administered. Operation of Law affects bank accounts, real estate, IRAs and pensions, vehicles and life insurance.
Bank accounts pass by Operation of Law when the account has a payable on death option. That means that as soon as Dad dies, the bank account passes to his new wife automatically. The Last Will does not control assets which are payable on death.
The bank statement will tell you if the account is payable on death. If it is not payable on death then there are two more options. If the value of the account is small, the bank may recognize a small estate affidavit. That means that the bank account will pass between Dad’s closest relatives. If your Dad is married, the account will be divided like this:
One half to spouse and One half equally divided between the kids.
If there is a lot of money in the account, the family will have to open a probate. Then if Dad has a Last Will, the Last Will decides where the money goes. If Dad doesn’t have a Last Will then the laws in the state where Dad lives, will make that decision.
Real Estate – Joint Tenancy
Real estate can pass to beneficiaries automatically in two ways. The first way is called Joint Tenancy with Rights of Survivorship. Joint Tenancy with Rights of Survivorship is a certain type of real estate deed. When Dad bought his house and put his new wife on the title as Joint Tenancy with Rights of Survivorship, one of two things can happen.
One, if Dad dies first the property passes automatically to the new wife. Dad’s children are disinherited. But, if new wife dies first, the assets pass to Dad. Then, new wife’s kids are disinherited. With Joint Tenancy with Rights of Survivorship one side wins and the other side loses.
Real Estate – Beneficiary Deeds
The second way to transfer real estate by operation of law is called a Beneficiary Deed. When Dad buys the property with a beneficiary deed, the deed says that Dad is only owner while he lives. It also says, that if Dad dies the property goes to the beneficiary listed on the beneficiary deed.
You may think that this sounds okay. But it may not be okay if you are Dad’s children. If Dad’s new wife is the Beneficiary on the Beneficiary Deed, then when Dad dies the real estate goes to new wife. One again, Dad’s children are disinherited.
With joint tenancy Dad’s kids have a chance to inherit the real estate. With a Beneficiary Deed, all chances are gone.
IRAs and Pensions
IRAs and Pensions are owned by Dad during his lifetime. At death, IRAs and Pensions are controlled by Beneficiary Designations. The Beneficiary Designation tells the investment company who gets the IRA or Pension when Dad dies. If Dad chooses his new wife, his children are disinherited.
Let’s say Dad owns a truck during his lifetime. He loves his truck and may want the truck to pass to one of the kids upon his death. Dad’s wishes may be listed in his Last Will or Trust. What matters is what the Title to the truck says. It doesn’t matter what the Last Will or Trust says. If the Vehicle Title is in Dad’s name and his new wife’s name, if Dad dies first the truck passes to his new wife.Let’s say Dad owns a truck during his lifetime. He loves his truck and may want the truck to pass to one of the kids upon his death. Dad’s wishes may be listed in his Last Will or Trust. What matters is what the Title to the truck says. It doesn’t matter what the Last Will or Trust says. If the Vehicle Title is in Dad’s name and his new wife’s name, if Dad dies first the truck passes to his new wife.
Are you seeing a trend here?
If the title is just in Dad’s name, the kids have a chance. But operation of law may impact this transfer as well. If Dad is married, the kids can go to the Motor Vehicle Department with the Title and say, Dad told us the truck should go to John. The clerk at motor vehicles will hand the kids a Small Estate Affidavit. Under the law of Arizona, even if Dad wanted the truck to go to John, the clerk will issue the new title like this:
One half to new wife and One half to all of Dad’s kids.
Can we divide the truck in half? No. You can’t divide the truck in half. Trucks don’t work like that. John, if he really wants the truck will have to buy the truck back from Dad’s new wife and all of the rest of Dad’s kids.
Life insurance is not controlled by a Will or Trust. Life insurance is controlled by a beneficiary designation. It doesn’t matter if the amount of life insurance is big or small. It doesn’t matter what the Last Will says or what the Trust says. If the beneficiary designation on the life insurance says it goes to the new wife, then it goes to the new wife.
Let’s change the facts around. Let’s say the beneficiary on the life insurance policy died before Dad. One of two things can happen. One, if Dad listed a second beneficiary, like the kids, then the kids will get the life insurance. If Dad doesn’t list a second beneficiary, then what happens? Well, if we don’t have a beneficiary we have to go to probate. Probate is everyone’s favorite topic and after practicing law for many years, I can tell you that probate is worse than what you imagine.
Are we having fun yet? Operation of law means it doesn’t matter what Dad wanted. Dad didn’t do his homework properly, and his kids will end up losing their inheritance.
All of this can be avoided by setting up your estate plan with a qualified estate planning attorney. The attorney will guide the whole family to make the right decisions, and sign the right documents so that the correct people get the correct inheritance.
Has your family spoken to an estate planning attorney to make certain you don’t lose your inheritance?