Clients come into my office after a person dies with a variety of questions and full of answers from everyone but an attorney. I often hear, “I searched the internet, and the articles say…” Typically, those answers are incorrect or don’t apply to the current situation. There are many misconceptions on the internet, and to a great extent, the answers are state specific. The following is an introduction to estate distribution that I use when providing continuing legal education to attorneys. Yes, even attorneys are required to complete continuing education. That is why we are only practicing law.
Upon death, a person’s assets, real property, financial accounts and personal property transfer in several different manners. Operation of law is usually the most effective method to transfer ownership. In this situation, the titling or nature of the asset causes ownership to transfer immediately upon death. Jointly owned assets or assets contained in a payable-upon-death account will pass by operation of law to the surviving joint tenant or named beneficiary. Other assets, by the nature of their contract, have specific beneficiaries, and the assets will pass to those beneficiaries upon death. Life insurance proceeds, retirement accounts, annuities and the like often have a designated beneficiary. Property owned by a trust distributes in accordance with the terms of the trust and does not require any additional proceedings. A probate or other estate administration is not required to transfer these assets, and therefore, an administrator or executor will not be responsible for the same.
Assets titled in the decedent’s name alone, which are subject to third-party control, would require action to transfer the same. The exception to the general rule is that property titled in the decedent’s name alone qualifies for exempt property under Section 5-3.1 of the Estate Powers and Trusts Law (EPTL). Section 5-3.1 of the EPTL prescribes specific assets that may pass to a spouse or minor child without court proceedings.
The transfer method of probate assets is determined in part by the nature of the asset and whether the recipient received a specific devise or bequest, a general request, or a residuary request. The transfer method is also determined by the distribution method (i.e., outright or to a trustee). Certain assets owned by the decedent will transfer outside the fiduciary’s control, either by operation of law—such as a payable-upon-death account, life insurance policy, retirement account, or other assets where designated beneficiaries are included—or by joint ownership. These transfers do not come within the fiduciary’s control and ability to time the distributions but must still be addressed in the estate tax return. Assuming the will does not provide for payment of taxes from the residuary estate, the recipients of these assets will also be required to contribute their proportionate share to satisfy the estate tax obligation. Obtaining the values for these assets is sometimes challenging when the beneficiary does not cooperate with the estate.
A specific devise of real property in a will allows the real property’s ownership to transfer upon the probate of the will. The will probate automatically transfers the ownership; however, it is also good practice to utilize an executor’s deed to clear any title issues that may exist. New York, notwithstanding the new estate tax laws, still automatically receives an estate tax lien against the real property upon death. Therefore, a release of tax liens must be obtained to pass a clear title to the beneficiary.
To transfer bank accounts or other money management accounts, the fiduciary must merely send instructions to the financial institution involved, which should transfer the assets. Typically, the institutions require a recently issued certificate of letters, death certificate and social security number. If the transferring asset is a stock or mutual fund, institutions may also require a stock power, an affidavit of domicile and a letter of instruction. The stock power and letter of instruction must be executed, and their signature must be Medallion Guaranteed. This is different from a notary; a Medallion Guarantee is typically found in financial institutions.
In those circumstances where the property is not being transferred outright to the beneficiary but proceeding to a trustee, it is important to confirm that the trustee or fiduciary has been appropriately appointed. In addition, if the executor is also the trustee, then the ultimate beneficiary’s approval must also be obtained before distribution is made.
Most other assets will require a court proceeding to permit the transfer of the same. Assets not transferred by the methods set forth above will require the court’s intervention to appoint a person to transfer the assets. The most typical court proceedings are voluntary administration, probate and—in the case of no will—intestate administration. We will discuss these proceedings in more detail.