Mr. and Mrs. Bartholomew have a combined estate of $1.2 million, all community property. Prompted by earlier Estate Tax Newsletters, they have had their Wills revised to incorporate tax-saving trusts so that both their $600,000 estate tax exemptions may be used. Doesn't it follow then, that Mr. and Mrs. Bartholomew may rest easy on the subject of estate taxes?

Unfortunately, the answer may be "No," depending upon the nature of their holdings. There are certain types of "nonprobate" assets, the disposition of which is not governed by the Wills. Insurance proceeds and retirement benefits, for instance, are paid per the applicable beneficiary designation. If some assets (such as stocks, bank accounts, or real estate) are held as joint tenants with right of survivorship, these will pass directly to the surviving "tenant" and not under the Wills. If Mr. and Mrs. Bartholomew have executed a Community Property Agreement, it will likely override the Wills. Any such nonprobate arrangements should be evaluated to see that their workings are not inconsistent with the Wills.

Let's assume, for instance, that all of their property is stocks and bonds, held in a brokerage account in the name of "Ralph J. and Lois P. Bartholomew JTWROS." Those six little letters ("JTWROS") indicate the account is held in joint tenancy, with right of survivorship. If Mr. Bartholomew were to die, his interest in the account would pass directly to Mrs. Bartholomew via survivorship; it would not be governed by the tax-saving provisions of his Will. Thus, his $600,000 exemption could go unused, at a cost to his family of $200,000 or $300,000 or perhaps more.

If you are concerned that your estate might include significant nonprobate arrangements which could undermine your Will, please call the attorney with whom you work, or Alan Macpherson, Larry Ghilarducci, Al Falk or Eileen Peterson of our Tacoma office.