Contract Rights

One type of property that passes outside of your will, and thus avoids probate is contract rights.  This means that you have entered into a contract with someone else that provides upon your death your property governed by the contract will be paid to the person or persons you designate.

Insurance

You may have a policy of life insurance. It is a contract with the life insurance company that says, “when I die, pay the beneficiary.” Regardless of what’s in your Will, the proceeds will be paid to the named beneficiary.

Retirement Plans

You may have a pension plan, profit sharing plan, 401(k) plan, 403(b) plan, IRA or similar retirement plan. That plan is a contract with the plan administrator or custodian or trustee to pay your retirement benefits to you during life, and to your designated beneficiary upon your death. Regardless of what’s in your Will, the proceeds will be paid to the named beneficiary.

Bank Accounts

You may have a bank account with someone else’s name on it (other than as a agent under a power of attorney). The signature card or CD will say somewhere “either may draw, payable to survivor.” That account is a contract with the bank that says “when I die, pay the survivor.” Regardless of what’s in your Will, the proceeds will be paid to the survivor.

You may have a bank account in your name alone, but the CD or signature card is marked “POD” or “payable on death” with a named beneficiary. That account is a contract with the bank that says “when I die, pay the named beneficiary.” Regardless of what’s in your Will, the proceeds will be paid to the named beneficiary.

Securities

You may have stocks, bonds, or other securities, or a brokerage account that has your name on it, and the name of another, followed by the letters “JTWROS” – Joint Tenants with Rights of Survivorship. That security is a contract with the issuer, or that account is a contract with the brokerage house that says “when I die, pay the survivor.” Regardless of what’s in your Will, the proceeds will be paid to the survivor.

You may have stocks, bonds, or other securities, or a brokerage account that has your name on it alone, followed by the letters “TOD” – Transfer on Death. That security is a contract with the issuer, or that account is a contract with the brokerage house that says “when I die, pay the named beneficiary.” Regardless of what’s in your Will, the proceeds will be paid to the named beneficiary.

Conversion to Probate Property

If you’ve named your estate as the beneficiary of the asset, you have converted non-probate property to probate property! If the named beneficiary predeceases you, and all successor beneficiaries have also predeceased you, that which would have been a non-probate asset will pass under the terms of your Will.  This is one of the reasons you should have a Will, even if you have beneficiary designations on all of your assets.

 

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