The Order of Operations of Estate Planning: Who Gets What?

Most of us remember the acronym PEMDAS from math class—the order of operations that tells you which calculations happen first. Some may also remember the old mnemonic, “Please Excuse My Dear Aunt Sally.” Just like math, estate planning has its own order of operations — or priority of distributions — and the results are often not what you might expect.

To make this clear, let’s talk about Dear Aunt Sally. Suppose her favorite niece leaves “$50,000 to my Dear Aunt Sally” in her Will. Most people would assume that Dear Aunt Sally gets $50,000 from her niece’s estate, plain and simple. Not so fast.

It may come as a surprise that a Will is often the last document that gets a chance to speak. In fact, many assets never pass under a Will at all. Instead, many assets – and for many people, even most assets – pass by other means, such as by operation of law or by beneficiary designations. If those arrangements don't match your estate plan, your Will cannot override them.

Effective and intentional estate plans don't ignore this priority of distributions — they deliberately work with it to achieve your wishes and the results you want.

Step 1: Assets That Pass Automatically by Operation of Law

Some assets transfer the instant you die because of the way they're owned.

For example:

• Joint bank accounts with rights of survivorship

• Real estate owned jointly with rights of survivorship

• Property owned by spouses as tenants by the entirety (in New York)

If you own your home jointly with your spouse, your interest generally passes automatically to your spouse. Your Will doesn't change that.

Likewise, if you add one child as a joint owner on a bank account, that child may become the sole owner at your death—even if your Will says all three of your children should inherit equally.

These transfers happen automatically, regardless of what your Will says.

Step 2: Assets With Beneficiary Designations

Many financial accounts have contracts that specify exactly who receives the asset when you die.

Common examples include:

• Investment/brokerage accounts (non-retirement)

• Retirement accounts (IRAs and 401(k)s)

• Life insurance

• Annuities

• Payable-on-Death (POD) or Transfer-on-Death (TOD) accounts

Let’s go back to Dear Aunt Sally. Suppose all of the niece’s assets are held in brokerage and bank accounts with beneficiary designations. The niece named her two children as the designated beneficiaries on those accounts. Aunt Sally gets nothing. The accounts pass directly to the named beneficiaries, no matter what the Will says.

Beneficiary designations and estate planning documents such as Wills and Trusts need to work together—not compete with each other.

Step 3: Assets Owned by Your Revocable Living Trust

If you’ve created and funded a Revocable Living Trust, assets titled in the Trust’s name pass according to the Trust’s terms. A properly funded Trust lets your successor trustee follow your written instructions without going through the court process of probate.

Now let’s rewind, and imagine the niece had planned differently.

Suppose that instead of naming her children as beneficiaries on her brokerage account, the niece had retitled it into the name of her Revocable Living Trust. Her Trust states that she wants to leave $50,000 to Dear Aunt Sally, with the rest split 50/50 between her children.

This time, Aunt Sally gets her $50,000, exactly as her niece intended. Because the Trust owns the account at the niece’s death, the trustee has clear instructions — and Aunt Sally isn’t left out.

Step 4: Assets that Pass by Last Will and Testament

The Will is the last step in the priority of distributions. Only assets that haven’t already passed by operation of law, beneficiary designation, or by Trust pass under a Will. Those assets are known as probate assets and their passage is monitored in a court process known as a probate proceeding in Surrogate’s Court. If there is no valid Will, New York law determines who inherits these assets through a similar court proceeding called an administration proceeding.

A Will governs only those assets that:

• Are owned in the decedent’s individual name

• Have no surviving joint owner

• Have no beneficiary designation, and

• Are not owned by (or pass via beneficiary designation to) the decedent’s trust.

For many people, that’s a much smaller category than they realize — sometimes small enough that a Will may have little left to do. Because probate is a public court proceeding, it can mean added time, expense, and opportunities for conflict. This is exactly why many people structure their plans so fewer assets pass through it.

So Why Have a Will?

Even when most of your assets may bypass it entirely, a Will is still essential. It’s where you:

• Name guardians for minor children

• Appoint the executor who will administer your estate (which may be important even if all assets pass outside of the Will)

• Direct where probate assets should go

• Create trusts for beneficiaries when appropriate

• Provide a safety net for anything you forgot to transfer elsewhere.

It’s one piece of the puzzle — just not the whole picture.

The Takeaway

Estate planning isn’t just about writing a Will. It’s about making sure ownership, beneficiary designations, Trusts, and your Will all work together. When these pieces don’t align, the results can surprise the people you love most — and may not reflect what you actually intended.

Before signing your estate planning documents, you should be able to answer one question for every asset you own:

“If I die tomorrow, how will this asset pass — and to whom?”

When every asset has an answer that matches your wishes, you’ve built something more valuable than a stack of legal documents. You’ve built a comprehensive and coherent estate plan that actually works.

***

The first step toward an estate plan that truly works is a thoughtful conversation. Schedule your Planning & Priorities Session todayto begin that conversation.

Jennifer Krakowsky is an estate planning attorney and the founder of Jennifer Krakowsky Law PLLC, a boutique trusts and estates practice serving clients throughout Westchester County and the surrounding areas. Attorney advertising.