I get asked the question above a lot! OK, so not the whole question at once…mostly I am asked about one part, or the other, and not all of the items at the same time, but I do get asked about how to deal with specific assets quite a bit. I am not sure if people think that each different thing they own needs to be treated separately, or if people are just really concerned about one particular thing, but people ask about how to deal with specific assets all the time.
Many times the person asking the question seems most concerned about a particular asset because that asset is so important to the person. A person may have built up a business over time, and they don’t want to see that asset lost after the person passes away. Sometimes the family cabin is where many memories were made and the person wants to preserve the memories. A family pet can be like a family member, and the person wants to make sure the pet is cared for after a person passes away. All of these are noble and worthy pursuits, and I am happy to make them happen for people. However, passing on a particular asset is usually part of a larger estate plan, and is probably not as complicated as it might seem.
Assets can be passed on using a will, a trust, or certain assets have other ways of being passed on. Specific assets, like life insurance, or an IRA will have a beneficiary designation that allows a person to determine who will get the specific assets. A will distributes assets when you die, and a will can have specific gifts included in the will. A trust distributes assets when you die, but can allow for directions about how and when the assets may be used after you die, meaning you can control how assets are used even after you are gone. There is not one approach that works for everyone and every situation, but knowing the options helps you to decide what will work best for you.
Beneficiary Designations, Beneficiary’s Deeds, and Transfer of Death Designations
Certain types of assets have specific ways to distribute the asset upon death. Many assets have beneficiary designations, like life insurance, IRAs, 401(k)s, TSPs, 403(b), and other similar retirement or financial accounts. Investment accounts can have transfer on death designations, which allow the assets in the investment account to be transferred to someone at death, but are not called beneficiary designations. Even bank accounts have pay on death designations that allow an asset to be paid out to a designated person or entity at the death of the bank account’s owner.
These transfers happen outside of probate and outside of the court system, or even a will. Sometimes people will try to change a beneficiary designation by saying what should happen to an asset that has a beneficiary designation in a will document. A transfer like those listed above happens outside of, and before probate proceedings take place. The transfer designations take precedence over what a will says. If you create a will, you definitely want to have the will agree with your beneficiary designations. That way, you don’t create conflict between who is supposed to receive your assets.
Financial assets are not the only type of asset that can be transferred using a specific beneficiary designation. In Colorado, you can transfer a specific piece of real estate using a Beneficiary’s Deed. A beneficiary’s deed is a deed that designates who should receive your real estate upon your death. A beneficiary’s deed needs to be signed, dated, notarized, and recorded before someone passes away to be effective. A beneficiary’s deed also is tied only to one piece of property. If you move, you will need a new beneficiary’s deed.
A similar process exists for a car in Colorado. You can use a Transfer on Death Designated Beneficiary Form to transfer a car outside of the probate process.
If you want to use a beneficiary designation, beneficiary’s deed, pay on death designation, and / or a Transfer on Death designation for all of your assets, you can do so, but you will need to make sure you have such designations set up for each and every asset that you own, which can be time consuming and cumbersome, but can be done.
Using a Will to Transfer Assets After You Die
You can also use a will to transfer specific assets to specific individuals. You can do so by writing the specific asset to be distributed to the specific person as a specific gift in your will. You can also designate a specific type, or class of assets, to go to a specific person. For instance, you could state that all bank accounts at the ABC Bank shall be given to someone specific, or that a rental real estate property shall be specifically given to someone.
If you had specific items of property that you wanted to give to someone, you can set up a separate memorandum in your will to give away specific items. (This is where you could give away your monkey!) Such a separate list should be mentioned in the will itself, but the separate list does not need to be notarized in the same way a will does. Instead, you can change the specific items on the list at any time. This can give you a lot of flexibility in giving specific gifts, though items on a separate memorandum are usually limited to tangible personal property, not gifts of money or real estate. Pets are considered personal property under Colorado Law (although they are family in the Bailey household!), so you can give pets to someone specific in a memorandum or in a will.
All of the specific gifts in a will or separate memorandum would be made after you die, but you could also have the safety of a will that says any other property not specifically given away shall be given to whomever you designate. A will can give you the safety of having a catch all clause that covers assets not specifically given away. Such a catch all clause is generally referred to as the residuary clause in a will.
Using Trusts to Transfer Assets After You Die
Another way to distribute assets is by using a trust. A trust controls any items owned by the trust. The trust may contain specific gifts of specific property, or general classes or types of property to be given away. Many people I meet are surprised that a trust could give away specific items of property to a specific person. I point out that the trust just needs to say what will happen to a specific piece of property, and that will happen. I almost think that trusts are considered some type of magical creation, and they may be, but probably not. A trust may describe what happens to property generally, or specifically.
A trust may also contain directions on what to do with property that is distributed by the trust. A trust may contain restrictions on when assets are distributed or may contain rewards for achieving certain milestones. Many trusts I write will restrict distributions to certain ages, but may reward beneficiaries for graduating from college or for wanting to purchase a home. Using a trust can allow you to control assets even after you are gone, giving you a say in how assets are used, and sometimes saving a beneficiary from themselves!
I previously wrote about pet trusts, where you can set aside money to care for your pet (or monkey!). If your pets are like mine, then they are family members and I want to take care of my pets after I am gone. I will specify who gets my pets, and if I use a trust, I can specifically designate assets to be used to care for my pets. A pet trust isn’t for everyone, but it can be a useful tool to make sure your pets are cared for after you are gone.
For those with family businesses or family farms, a trust can help ensure the business carries on, or that the farm stays in the family. A trust can help designate who is responsible for the business operations or for the farm operations. A trust may not be the only tool available, as family limited partnerships and family LLCs may also be useful strategies, but a trust can help give the farm or the business to the right people. Having the right people in charge of a business or farm can help minimize family conflict or contentions.
Choose the Right Way to Give Your Stuff Away!
As I have mentioned, there is no one right way to distribute your assets. One method may work well for one person. One method or another may work well for one asset or asset type. Still other methods are better for certain people, assets, or other situations. Most often, a combination of a will, trust, and beneficiary designations is the way to go, but the combination can be different for everyone. You will want to determine which combination is best for you. To discuss your options, you should consult with an experienced estate planning attorney. You can make an appointment to talk to an attorney by going here.