There’s a common misperception that putting all assets into joint names or “pay on death” format makes for easier estate administration if a person passes away. In fact, an estate needs cash to pay its taxes and bills. An Executor who is named in a Will to handle the administration only has authority to handle the assets that were in “probate format” — meaning, assets in the name of the decedent without a designated co-owner or beneficiary. The assets which have beneficiaries or co-owners on them are generally referred to as “non-probate assets,” because they are generally not governed by the terms of the Will. At the time of death, NJ law presumes that the deceased intended the non-probate asset to pass to the person who is named on it as joint owner, POD (pay-on-death) or beneficiary, regardless of what the Will says. This means that that person has the right to claim that asset for themselves.
So what problems does this cause? I have dealt with many estates where the estate had a house and a slew of nonprobate assets, and virtually no cash in the name of the decedent alone, because s/he had put one of her heirs on every single asset. Yet estate taxes had to be paid. Bills had to be paid. Sometimes a mortgage still had to be paid. The house had to be supported while it was on the market. How was the Executor going to do all that without access to cash?
When there is no discord in the family, the heirs can agree that they will each lend cash to the estate from the nonprobate assets they received. However, things do not go so smoothly when there is discord, mistrust or estrangement among the people inheriting the estate. Sometimes, certain heirs believe that the use of the POD designation was just for “convenience,” or was even a mistake. Further, sometimes the assets that have passed to someone in nonprobate format get used up before the money can be lent back to the estate.
Certainly there will be instances where it is vital to have a beneficiary. For example, if a tax-deferred account — such as an IRAs, 401K or 403B — has no beneficiary, it generally has to be cashed out, with immediate realization of income tax. The point is that you have to think things through with regard to your particular family when you structure your assets and design your plan. There’s no “one size fits all,” and “avoiding probate” in New Jersey can create a more complicated estate that becomes more expensive and stressful to administer. Though this may sound counterintuitive, for many situations,it can actually be much simpler if most non-tax-deferred assets are kept in the name of the decedent alone.
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