Margaret* was a widow with three grown daughters whom she loved very much. She also had a sister with dementia living in a nursing care facility. In her will, which she signed six years ago, she provided for a specific amount of money to go to her sister with all remaining assets divided equally among her daughters.Margaret died last year leaving several hundred thousand dollars including the proceeds from the sale of her home. No money went to her sister; no money went to two of her three daughters. The third daughter inherited all the money. How did that happen?
Many people assume that the provisions of their will decide who gets their assets at death. In reality, the answer depends on whether the assets are “testamentary assets” or “non-testamentary assets.”
Non-testamentary assets are those assets that allow the owner to say who should receive them regardless of what the owner’s will says. Examples of possible non-testamentary assets include insurance policies, savings and checking accounts, safety deposit boxes, brokerage or other financial accounts, retirement accounts, automobiles, and one’s home.
The will controls all other assets (or state law if there is no will) and these assets are called testamentary assets.
So what happened in Margaret’s case?
Three years ago, Margaret decided to sell her house and move into an assisted living center. All her assets, including the proceeds from the sale of her home, were in her checking and savings accounts. One of her daughters lived in the area; the other two lived out of state. As Margaret’s health declined, the daughter living in the area began to handle Margaret’s affairs. At that point, Margaret and her daughter decided it would be best if the daughter could access the checking and savings accounts to pay Margaret’s bills.
In adding her daughter to the accounts, the bank employee prepared new signature cards for Margaret and the daughter to sign. On the cards were several boxes to check. Margaret asked the bank employee “which box should I check?” and bank employee told her that the most common box was the JTROS. This box created a joint tenancy with right of survivorship account. Margaret checked the JTROS box.
Did Margaret or daughter understand the significance of that choice? Did the bank employee understand the impact of the JTROS choice versus the choice of the box that would have paid the money to her estate on her death or the box that just let the daughter sign checks? We don’t know.
What we do know is that when Margaret died, her daughter who lived nearby automatically received the assets in the checking and savings accounts as surviving joint tenant, which was all of Margaret’s estate. There were no testamentary assets to pass on to the other daughters by will.
Non-testamentary assets are a good thing. Assets can go the right person without delay or without the need to probate a will. However, it is critical to understand the impact of what you sign when creating or amending a non-testamentary asset ownership agreement. If you have any doubt, you should consult with an estate planning attorney. The attorney can ensure that both your testamentary and non-testamentary assets pass to your beneficiaries consistent with your wishes.
*Not her real name.