Contracts are agreements, typically between two or more people, that are usually enforceable in court if not honored.
Generally, a property owner may have a contract that dictates what happens with that property when the property owner dies. Such a contract will facilitate the transfer of ownership of that property to a different, living person when the property owner dies. Each such properly prepared contract will provide oversight and enforceability regarding property ownership changes.
However, if there is no contract, there is no oversight/enforceability between the people involved in changing the property’s ownership when the property owner dies. In other words, no contract means no oversight. Without oversight, dishonesty or improprieties can take place.
Therefore, when there is no contract, a court must provide oversight. When it comes to oversight of property ownership changes due to someone’s death, the court that provides oversight is the probate court. Of course, the court’s oversight is not free, and its requirements are what create the perception (often accurate) that probate is expensive in time and money.
There are typically four types of contracts that can allow ownership of assets subject to those contracts to be changed upon a person’s death, without probate.
First, life insurance can be administered independently from probate. A life insurance policy is a contract that requires a life insurance company to pay proceeds to a beneficiary when a certain insured person dies. The beneficiary and life insurance company provide oversight of each other.
Second, death-triggered transfers of ownership of money in bank and investment accounts can be facilitated independently from probate. A “payable on death” or “transfer on death” designation is a contract with the account manager (bank or investment company) that requires the account manager to move ownership of the account or its contents to a certain, living person when the initial owner dies.
Third, ownership of real estate can be titled to transfer upon a person’s death.
For example, a married couple may own property together and want the entirety of the property to be owned by the surviving spouse when the first spouse dies. Creating this “survivorship” contract is the reason that some married couples will convey their property from themselves to themselves. In such instances, the survivorship designation is included in the deed so that the survivorship designation is publicly recorded and enforceable.
Alternatively, a person can instruct that property ownership be transferred to a different non-owner when the person dies. These instructions are referred to as transfer on death designations.
Fourth, trusts are contracts. A trust’s rules can provide the legally required oversight that will avoid needing the probate court to oversee property ownership changes when the owner of the property dies.
Trusts can be handy “catch-all” contracts in this context. Nonetheless, trusts are not the only way to avoid probate, and many people with lots of money and possessions may not need a trust to avoid probate if each of their assets is governed by the one or more of the other three types of probate-avoiding contracts.
Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at Lee@LeeSchroeder.com or at 419-659-2058. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.