We often have clients ask the question whether a Will or Trust always controls the distribution of their assets. The fact of the matter is that they do not always control. Here are two categories where neither the Will nor a Trust would govern distribution:
Survivorship Property. This category includes assets owned jointly by the decedent and other parties as survivorship property. Such property is often listed using “Joint Tenants with Right of Survivorship” or “JTWROS” in the title. This type of property passes directly to the survivor. In other words, it does not go through probate so the Will has no power over that type of asset. Neither does a Trust since the ownership is held in individual names not in the Trust.
Beneficiary Named or Pay-on-Death Designated. Assets in this second category have a beneficiary named or a “pay-on-death” (“POD”) or a “transfer-on-death” (“TOD”) designation. These include assets such as life insurance, IRA’s, 401K’s, or financial accounts if they have a beneficiary, POD, or TOD designation. This type of property passes directly to the beneficiary or the POD, or TOD designee. Neither the Will nor the Trust control this category of asset.
A Will controls assets that must go through probate because neither of the above two categories apply—there’s no joint owner and there’s no beneficiary, POD or TOD designee. A Trust does not apply because the Trust only controls assets that are transferred into the Trust—either before death or at the time of death. Simply stated, joint ownership with survivorship and beneficiary, POD and TOD designations trump the terms of a Will or Trust.
In estate planning, it is important to understand these categories. If you name a joint owner with survivorship or if you name a beneficiary, POD, or TOD, your Will or Trust will not apply to those assets. Because of this, the form of ownership you choose (i.e. JTWROS or other) and beneficiary, POD, or TOD designations should be included in any good estate planning process. When you consult with your estate planning attorney, don’t just focus on the Will or Trust—these are important but you should also discuss ownership and beneficiary, POD or TOD designations as well.