Avoid Probate: Simple Estate Planning Strategies

Avoiding Probate Through Estate Planning

Estate planning will allow you to maximize your return on existing assets, minimize estate taxes, avoid probate, and pass your assets on to your intended heirs and beneficiaries upon your passing or incapacity.

Understanding Probate

The definition of probate

According to the Legal Information Institute, probate is the judicial process that administers the distribution of a deceased person’s assets upon death.

The probate process is governed by state law, which has the legal authority to decide all matters related to wills and estates.

Reasons To Avoid Probate

Most estate planners discourage the probate option primarily because of the prohibitive costs and fees associated with the process. The probate costs can substantially diminish the estate’s value, especially if a will contest exists.

The costs and fees usually include executor fees, court costs, and attorney fees.

Ways of Avoiding Probate

Your estate planning lawyer will describe how your assets can be protected from probate and instead automatically transfer to your intended beneficiaries. These ways include:

• Life Insurance
• Pension Plan
• Joint Tenancy
• Pay On Death Accounts
• Totten Trusts
• Savings Account Trusts
• Transfer-On-Death Designation (securities)

Life Insurance Can Avoid Probate

Consider the following scenario:

1. My father died, and his will leaves everything to me, but there is a life insurance policy that names my brother as a beneficiary. Dad has not gotten along with my brother for years, and I am sure he wanted me to get the life insurance proceeds under the will. Who will get the proceeds?
2. Your brother will receive them because the person named beneficiary under the insurance policy gets the proceeds. This is true in most states, even when there was an attempt to change the beneficiary expressly. If your dad wanted to change the life insurance policy beneficiary, he had to contact the insurance company and fill out the proper forms.

Since the controlling document for the gift is the life insurance policy and not the will, there is no need to probate the will since it cannot override the transfer that is made from the life insurance policy.

Never attempt to change the beneficiary of life insurance by the will without consulting with your attorney first.

Your Pension Plan Can Avoid Probate

Any death benefit payable under your pension plan will be controlled by the beneficiary designation you completed when the pension was first set up.

Changing the person you previously designated as the beneficiary

1. First, consult with your estate lawyer about your desire to change your pension beneficiary.
2. Contact your employer’s HR Department And ask for the proper forms.
3. Do not try to change the beneficiary by your will.
4. Remember that under federal law, you must leave a portion of your pension benefits to your surviving spouse.

Remember that if you got married after making your beneficiary designation in the pension plan documents, your surviving spouse will, by law, be entitled to share in your pension benefits.

Always contact your attorney and employer as soon as you marry to review your pension beneficiary designation.

Establishing A Valid Trust Can Avoid Probate

Property held in trust belongs to the trust and not your will

A trust can be both a living and testamentary document in which a person’s assets are legally protected and awaiting the legal condition(s) upon which the assets can be distributed to the designated beneficiaries via the trust.

The trust document must set out both the distribution conditions and the beneficiaries’ identity.

Advantages of trusts

Once a trust is formed and funded, the assets technically belong to the trust. An independent third party is designated to manage and administer the assets for the trust’s creator and its beneficiaries.

According to estate planning professionals, setting up a trust can be an effective method for people to protect their assets both during their life and after they pass.

Before your attorney sets up your trust, make sure you fully understand the advantages of the trust option verses the will option.

Advantages of the trust over a will

There are significant advantages of a trust over a simple will.

The most significant advantage of a living trust is that any property transferred to the trust will pass directly to your beneficiaries and avoids the probate process.

A trust is also an excellent way to make gifts to minor children or to provide for the care of elderly parents. A turst is also used by people getting on in years who are concerned with their possible future incapacity.

Pay On Death Bank Account Can Avoid Probate

If your state permits payable-on-death (POD) accounts, there are no risks involved. All you have to do is designate, on the form provided by the bank, the person(s) you want to receive any money in the account (savings, checking, or certificate of deposit) after you die.

Your beneficiary can claim the money simply by giving the bank a copy of the death certificate and personal identification.

Multiple Beneficiaries

Most states provide that POD accounts may be for single or multiple beneficiaries. A beneficiary is not the same as a joint account holder. A beneficiary is a person(s) named for which the money in the POD account will be payable upon your death.

A POD account is not like a joint account. Unlike a joint account holder, your POD beneficiaries do not have any legal rights or interest in your account while you are still alive. If multiple beneficiaries are named, each will receive their funds in equal shares unless you, the account owner, have designated a different percentage to be apportioned between your beneficiaries.

Beneficiaries’ Rights Before Death

On a POD bank account, the beneficiary has no rights to the funds until your death. Until then, you are free to use the money in any way you choose. You are not obligated to maintain certain cash levels in the account or leave any money whatsoever in your account.

Alternate Beneficiaries

In most states, the major disadvantage to a POD bank account is that you cannot name alternate beneficiaries. Alternate beneficiaries complicate the process, and these accounts are not set up to accommodate alternate heirs. However, one way of possibly overcoming this obstacle is by setting up multiple POD bank accounts for each of your beneficiaries. However, this can be tricky, and you will want to spend some time with your banker thinking this through.

Some states have different names for POD bank accounts. For example, New York refers to these accounts as Totten Trusts.

How Do My Beneficiaries Get Their Money

The process is surprisingly simple. Upon your death, your POD named beneficiary will be required to produce their identification and a certified copy of your death certificate to the bank. So long as there are no disputes between your named beneficiaries, the bank will release the funds per the POD bank account instructions.

The Totten Trust Avoids Probate

A Totten trust requires opening a bank account in the depositor’s name “as trustee for” a named beneficiary. However, there is no trust relationship established. Instead, the account functions like a “payable-on-death” account.

During the depositor’s lifetime, the depositor can withdraw the funds at any time for any use.

The “beneficiary” the depositor names on the account has no rights to any of the funds while the depositor is alive. but automatically gets whatever is left in the account when the depositor dies. Because the beneficiary cannot withdraw funds during the depositor’s lifetime, the depositor will not be treated as having made a taxable gift.

Some states will not permit you to open a payable-on-death bank account but will allow you to accomplish precisely the same result by using a Totten savings account trust.

Joint Tenancy Can Avoid Probate

Joint tenancy is another way to avoid property for purposes of avoiding probate. Upon the passing of one joint property owner, the surviving joint owner automatically receives the deceased’s ownership share of the property.

Unlike property legally held in common, called separate ownership, joint tenancy owners have what is called the legal right of survivorship. This means the deceased owner’s interest in the property immediately and automatically transfers to the surviving joint owner.

Learn more about joint ownership.

Transfer-On-Death Designation On Stocks And Bonds

This is a method of avoiding probate on stocks and bonds. In most states, you can add a transfer-on-death designation to the individual securities or the security account.

When you pass, the securities will transfer without the need for probates.

Locating An Estate Planning and Trust Lawyer

Should you have any questions or require further information seek the online advice from a verified Estate Planning & Trust Lawyer