“This coordinated lying between us is exhausting, how do criminals manage?”
With careful coordination, my wife and I were able to keep the truth about Santa Claus from our children for several years. During that time, neither of us wanted to be the bearer of bad news about Santa to the kids. When they were eventually told the truth, how traumatic and disappointing it was for them to learn that it was their father, not Santa, who had enjoyed the cookies and milk left out on Christmas Eve.
In the estate planning context, I can understand the desire of some of our clients to avoid having to disappoint loved ones. Some clients don’t want to bear bad news to potential beneficiaries about an inheritance amount or percentage. These “Minnesota nice” clients would rather live in the more comfortable ambiguity by not facing the disappointment of potential beneficiaries.
In this month’s update, I briefly summarize who has the right to know the details related to the transfer of assets following death. While this question is of central focus following the death of a loved one, it is also of relevance for advising our living clients. As summarized below, the information disclosed following death will depend upon the legal ownership structure of the asset.
- Joint Ownership and Beneficiary-Designated Assets: First, assets passing by either joint ownership or beneficiary designation transfer independent of a Will or Trust. The administrators of these types of assets will only respond to information inquiries from the surviving owner, in the case of jointly-owned property, or those individuals or charities the decedent listed as beneficiaries, in the case of beneficiary-designated accounts. The administrator will only share the information necessary to allow the beneficiary to receive his, her or its share of the assets. Everyone other than these named beneficiaries, when inquiring about the status of ownership, will be told to “get lost, its none of your business.”
Consider the case of Bob, who decides to name his wife as beneficiary of 50% of his retirement accounts, and two of his four children as beneficiaries of 25% of his retirement accounts. Following his death, only his wife and his two “named” children will know the plan. No one else, including his two non-designated children, will have the legal right to know the identity of the beneficiaries or the amounts received.
- Trust Assets: Second, assets owned by a trust are distributed according to a trust agreement and are generally distributed independent of any probate court oversight. Following the death of the trust creator, the trustee named by the trust agreement must notify the beneficiaries of (i) the existence of the trust, (ii) the fact that he or she is named as a trust beneficiary, and (iii) the current assets of the trust. As the trust is subsequently administered, the trustee must provide the beneficiaries with status updates. However, no one other than the trust beneficiaries is entitled to knowledge of these facts.
Consider the case of Rod, who is a charitably-included father of three. Rod decides to name certain charities as the sole beneficiaries of his revocable trust assets at his death. Following Rod’s death, only the charities are legally entitled to the knowledge of the trust terms and its assets. The trustee has no legal obligation to share any information with anyone else, including his three children.
- Probate Assets: If assets do not pass by joint ownership or beneficiary designation, and are not owned by a trust, the assets become part of the decedent’s estate. Unless the value of the estate is below a certain threshold, the assets in the estate are then administered through the probate court process. While probate rules differ state-by-state, the following principles generally apply to the disclosure of assets administered through a probate estate:
- Public Disclosure. Before an estate can be administered, a probate application or petition must be prepared and submitted to the probate court. This application for probate proceedings must include a summary of the known assets and liabilities that were individually-owned by the deceased (the “probate estate”). The application must also include the Will, which is then made part of the public record of the probate. Not only can anyone in the family determine the nature and extent of the assets in the probate estate, as well as the identity of the beneficiaries of the Will, but so can the decedent’s nosy neighbor.
- Notice Requirement. As part of the probate application or petition, certain “interested parties,” as defined by law, must be individually notified by mail and given the chance to object to the application or petition. Surviving children, and any children of a deceased child, must generally be notified as part of this process, regardless of who was named as beneficiary (or beneficiary) of the Will or the Personal Representative of the estate. This notice provides the children legal leverage to be involved in the administration of the estate, even if such children are not named as beneficiaries
If litigation is initiated by a family member following death, or if a fiduciary is filing tax returns on behalf of the estate or trust, it is possible for family and fiduciaries to obtain information about asset values.** In general, however, assets passing by joint ownership, beneficiary designation or trust agreement receive a greater degree of privacy vis-à-vis assets passing through a probate estate.
Consider the case of Mabel, who named a charity as the beneficiary of a specific gift under her Will. Unfortunately, Mabel received some bad advice during lifetime, and was told to hold all assets in accounts that were either jointly-owned or beneficiary-designated. Following Mabel’s death, all assets passed by these means, leaving no assets in Mabel’s probate estate to fund the charitable gift specified under his Will. As a result, the charity had no legal means to know the history of Mabel’s assets, and no legal right to compel the children named by beneficiary designation to make the distribution.
As I have described in a previous update, the most efficiently-administered estate plans following death are those plans in which there was adequate disclosure by the client during lifetime. Particularly if there is not adequate disclosure to the children or other potential beneficiaries during lifetime, potential beneficiaries are more likely to assert any legal rights that they might have to determine who was designated as beneficiary, even if they are not legally entitled to the assets. Through the adequate disclosure of their plan during lifetime, parents provide a clear path forward to surviving family members following death, even if it means being the “bearer of bad news.”
** If surviving family members have reason to believe that the estate plan was improperly implemented, such as by reason of “undue influence,” or that the deceased loved one did not have the requisite mental capacity, then the surviving family members could seek a court order directing the administrator to disclose the assets in the context of litigation. Additionally, the fiduciary holding legal authority for the administration of the tax filings would have the right to obtain information about the assets following death.