Non-Probate Property

Overview Property Passing by Right of Survivorship Life insurance Pay-on-Death & Transfer-on-Death Contracts

Right of Survivorship: Non-probate Transfer of Real Property

Concurrent Ownership of Real Property Two types of concurrent ownership of real property which may be used to avoid probate: Joint tenancy (“JT”) – any number of related or unrelated people Tenancy by the entirety (“TBE”) – husband & wife only

Key Characteristics Property is co-owned by multiple persons, each of whom holds an “undivided, fractional interest” in the property Each co-owner has the right to use and possess the entire property, not just a portion of it Non-probate property

Joint Tenancy – The Basics Grantor conveys “to Phil and Claire, as joint tenants with right of survivorship” Right of survivorship: When one co-owner dies, his interest is removed by operation of law and the remaining co-owner automatically becomes the sole owner Joint tenant interests are NOT devisable or descendible

Creation = Intent + 4 Unities At common law, a joint tenancy is only created if all four unities are present: Unity of time Interests vested at the same time Unity of title Interests acquired by the same instrument Unity of interest Interests of the same ownership share, equal in size, and duration Unity of possession Interests give identical rights to possess, use, and enjoy the whole property If all four unities are not present, then a tenancy in common is created

Tenancy by the Entirety – The Basics Grantor conveys to “Phil and Claire, as tenants by the entirety” Only married couples can hold property in Tenancy by Entirety 4 Unities + Marriage Right of survivorship (same as Joint Tenancy) Neither spouse may sell or encumber his/her interest independently of the other

Tenancy by the Entirety Severance Joint Tenancy Tenancy by the Entirety If one joint tenant transfers his interest: The joint tenancy is severed as to that interest The right of survivorship is destroyed The grantee becomes a tenant in common with the other owners The death of either spouse Leaving the survivor sole owner of the fee estate Divorce Majority of jurisdictions: upon divorce, the tenancy by the entirety becomes a tenancy in common Minority of jurisdictions: upon divorce, the tenancy by the entirety becomes a joint tenancy Mutual agreement of both spouses

Severance & Probate Note that if one of the joint tenants is deemed to have died due to divorce, disclaimer, or the like, the joint tenancy severs and becomes tenancy in common and therefore probate property

Examples: Severance Phil, Claire, and Gloria own the property as joint tenants. What if Phil sells his interest to Cam? Cam has an undivided 1/3 (33%) interest as a tenant in common with Claire and Gloria As between them, Claire and Gloria are still joint tenants with rights of survivorship What if Claire dies? Claire’s interest automatically passes to Gloria (who now owns a 2/3 (66%) interest as a tenant in common with Cam) What if Cam dies? His interest goes to his devisees or heirs

Hypo: joint ownership No A father owned property and wanted to avoid probate. He executed and recorded deeds creating joint tenancies between himself and his son. The father kept the deeds and occupied and maintained the property. The father later remarried. He then sought to have the deeds declared void, on the grounds he had no intention to give his son a present interest in the property. Can he void the transfer? No The father wanted both the freedom of absolute ownership and the probate avoidance feature of ownership shared in joint tenancy But with joint tenancy, he cannot have both Once he elected to make the gift of the joint tenancy interest, he bound himself to that choice

Life Insurance

Introduction to Life insurance Contractual arrangement between an insurance company and an individual (called the insured) The insured designates a Beneficiary who will receive the proceeds if/when the insured dies Two primary types: Term Whole life

Primary Types of Life Insurance Term: Covers a specific period of time (e.g., 10 or 20 years) Insurance company is contractually obligated to pay the designated Beneficiaries if the insured dies within the contract period Insurance company may or may not ever have to “pay out” Whole Life: Combination of life insurance and a savings account Permanent insurance (not just for a contract period) Eventually the insurance company will have to “pay out”

Why Life Insurance is a Will Substitute Can be a significant asset of Testator’s estate Does not comply with the Wills Act formalities If/when proceeds are paid, the proceeds are distributed to the Beneficiaries outside of the probate system Typically only requires presentment of a death certificate

Designating Beneficiaries When the account or policy is opened, the owner completes a “beneficiary designation form” to name the primary Beneficiary and contingent Beneficiary (as a “back up”) Upon the owner’s death, the $ is distributed to the primary Beneficiary (or the contingent Beneficiary, if the primary Beneficiary is deceased) Owner has the right to change the designated Beneficiaries, usually by completing a new beneficiary designation on the company’s prescribed form

Changing the Designated Beneficiary: Majority Rule A change of the designated Beneficiary must be made in the manner prescribed by the policy or account (usually by completing a new beneficiary designation on the company’s form) Attempts to change the Beneficiary by other means, such as by a will, are not effective The will does not “override” the beneficiary designation form

Life Insurance & Divorce Is a beneficiary named on a life insurance policy is revoked upon divorce? In some states, divorce does not revoke the beneficiary designation on a life insurance policy in favor of the former spouse To change the Beneficiary on a life insurance policy, the insured must comply with the insurance company’s process (usually by executing a new beneficiary designation form) Under the UPC, a beneficiary designation on a life insurance policy naming an insured’s spouse is revoked, by operation of law, upon divorce UPC §2-804

Pay-on-Death & Transfer-on-Death Contracts

Overview P.O.d. & t.o.d. Recognized under the UPC and nearly all states Allows a party to title an account or contract in his name, with the proceeds to be paid upon his death to a designated person Applies to bank accounts, securities accounts, insurance policies, employment contracts and compensation agreements, and other types of assets Accounts/contracts are transferred to the designated person outside of probate

Multiple party accounts Joint account: An account payable to “A or B”; The survivor takes sole title to whatever remains on the death of the first joint tenant P.O.D. account: An account held as “A payable on death to B”; The depositor means to retain lifetime ownership and for the other person not to have any rights to the funds until the depositor’s death Convenience account: The depositor means for the other person to have the power to draw on the account for the convenience of the depositor, but not for other purposes and not to take the balance at the depositor’s death

Estate of Helen Butta Facts? Issue? Notice that during life, access is the same for JTWROS and Convenience accounts. At death, very different results. Estate of Helen Butta Facts? Issue? What evidence was offered in support of JTWROS? What evidence was offered in support of convenience account? What other evidence did the court consider? Presumptions – What presumption might have applied? What was necessary for presumption to apply? Why did court not apply the presumption? Butta was in NY, which has not adopted the UPC. However, the Comments to UPC section 6-212 state that the drafters of the UPC intend “to permit a court to implement the intention of parties to a joint account…if it finds that the account was opened solely for the convenience of a party who supplied all funds reflected by the account and intended no present gift or death benefit for the other party.” So the court in Butta and the comments are consistent in seeking donor’s intent.

What is a Totten Trust? A type of pay-on-death account that is recognized in most states First recognized in In re Totten, 71 N.E. 748 (N.Y. 1904) Bank account titled in the name of “O, as trustee for A” Today, financial institutions often have a pay-on-death beneficiary form O is entitled to withdraw funds during O’s life – upon O’s death, the account is transferred to A

What If Beneficiary Predeceases? If the beneficiary predeceases the depositor, the trust automatically terminates The funds on deposit belong to the depositor absolutely and do not pass to the beneficiary’s estate The beneficiary must survive the depositor-trustee in order to succeed to the amount on deposit under a Totten trust account

UPC: Non-probate Transfers on Death A provision for a non-probate transfer on death in: insurance policy contract of employment bond mortgage or promissory note trust, conveyance, deed of gift, marital property agreement or other written instrument of a similar nature is non-testamentary UPC §6-101

Transfer-on-Death Deeds Owner of real property may designate a beneficiary to receive the real property upon owner’s death by recording a transfer-on-death deed Real property is conveyed “to O, transfer on death to A” Recognized in less than ½ of the states

Transfer-on-Death Deeds Deed is recorded during Grantor’s life During Grantor’s life: Grantor holds the Fee Simple Absolute Grantor retains the power to encumber and convey the property Grantor may revoke the transfer-on-death deed Grantee has no interest (yet) Upon Grantor’s death, the deed becomes effective and title transfers to Grantee (with the death certificate being recorded to evidence the transfer)

Hypo Grantor executed a deed that conveyed Blackacre to Grantee with the following stipulation: “this deed is to be effective only at Grantor’s death.” Is this valid under the common law? No. This deed is likely to be regarded as testamentary, and thus invalid if it does not comply with the formalities of a will Is this valid under the UPC? Yes. UPC Article VI Part 4 authorizes T.O.D. deed arrangements

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