One of the most commonly misunderstood features of property transfer at death involves what assets are included in a person’s estate and which pass automatically to heirs. We have encouraged clients to use the following rule of thumb (which is general), but covers the vast majority of assets:
Solely-owned Property includes assets owned only by one person, which will pass to others by way of that person’s Will. Solely owned property requires the opening of an Estate, so that the personal representative can distribute the property. The process of opening and administering an Estate is sometimes referred to as the "Probate process."
Jointly-owned Property are those owned jointly with another person. Upon death, these assets generally pass to the other joint owner(s), and are not affected by the Will. There are numerous exceptions to this general rule, however. Real estate and automobiles, for examples, must be titled jointly "with right of survivorship" in order to pass to the joint owner. Provided the joint asset is properly titled, it should pass to the surviving joint owner upon death, avoiding need to be administered via the deceased person's Estate.
Beneficiary Designated Property includes assets like annuities, life insurance, IRAs, 401(k)s, and other assets which allow you to name a beneficiary. These assets will pass to the person(s) listed as beneficiary. Failure to name beneficiaries on retirement assets is one of the most common (and most easily avoidable) estate planning mistakes. Like properly titled joint assets, these assets do not need to be administered by the deceased person's Estate.
A note regarding Long-Term Care: Simply put, making an asset joint with another person does not necessarily "protect" it from nursing home care costs or Medicaid or Estate Recovery. However, making an asset joint with another person may cause a gifting penalty to be levied against the Medicaid applicant.
A note regarding PA Inheritance: Just because an asset does not pass into a deceased person's Estate does not mean it avoids inheritance tax. Sometimes joint ownership can reduce inheritance tax, but jointly owned property and beneficiary designated property are still subject to Pennsylvania Inheritance Tax.