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A. Overview

A. Overview

Many arrangements – besides Trusts – exist for the transfer of money or property outside the probate system. (Such property is said to be “non-probate” property, and is not part of the “probate estate.”) These arrangements should be made for convenience and to avoid probate court – not for state or federal death tax savings, because there will be no such benefit. The definition of “estate” for federal tax purposes is much different from that in probate court. Note, too, that your state’s inheritance or estate tax, if any, probably includes property passing outside probate, if the transfer is due to the decedent’s death. (Life insurance proceeds are usually not taxed as such, however.)

BEWARE ! A Will has no control at all over any disposition of property outside probate. Overlooking this fact is a common and potentially huge estate planning blunder.

Think of it this way: Your Will (or Trust) disposes of all property that is NOT disposed of some other way. Some of these “other ways” are mentioned below. All are familiar and in common use. What these legal arrangements have in common is that each – independently – provides for the disposition of property at or before the death of the owner. In other words, the terms of these arrangements themselves dictate who gets the property at the estate owner’s death – not the owner’s Will or Trust.

Unfortunately, people just forget that if an asset falls into one of the below-listed categories, the Will (or Trust) cannot dispose of it. A Will disposes of only the probate estate. If that consists of little or nothing, so be it. You had better be happy with the “out of probate” dispositions you have put in place. People also forget that some very common non-probate property arrangements – like life insurance and retirement plan beneficiary designations – do not necessarily become invalid upon divorce, as does a bequest to an ex-spouse in one’s Will.

Be aware, too, that a Trust disposes only of property that has been transferred to it. If no asset transfer into Trust is made – either during life (i.e., into a living Trust) – or at death, by your Will, then there is no property to be controlled by the terms of the Trust, and it becomes a worthless piece of paper.

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