How to Avoid Probate
What if your hard-earned savings did not make its way to your intended recipient(s) upon your passing? As we mentioned in a previous post, it’s worse than lost luggage.
While a will is a good start for estate planning, it typically is not enough to avoid the costly, time-consuming, and public probate process. There are a few relatively simple and straightforward things you can do now to ensure your estate is carried out as you intended and privately, out of public record.
Assets with beneficiary designations usually avoid probate. Many account types request beneficiary information during the account opening process (ex. IRAs, retirement plans, life insurance). We recommend reviewing your beneficiary designations routinely to ensure they are as you intend based upon your current situation. For example, a change in marital status likely would prompt a change in beneficiaries. We recommend listing not only a primary beneficiary (ies) but also a contingent beneficiary(ies) in case the primary beneficiary predeceases you.
Transfer Upon Death (TOD) or Payable On Death (POD) account titling is another way to transfer ownership to a beneficiary upon the owner’s death. TOD or POD titling typically applies to financial accounts (including bank accounts and non-retirement investment accounts) and assets such as real estate or vehicles.
Many financial accounts can be titled with multiple owners to ensure that upon the passing of one owner, the assets seamlessly transfer to the other without the need for probate. Assets or accounts owned jointly are typically titled as “JTWROS” or “JT TEN” (“joint tenants with the right of survivorship”). Certain states are “Community Property States” which require all asset acquired during marriage to be split equally, so listing a non-spouse joint owner may not result in those assets being transferred as you intended.
Revocable Living Trusts
Through a living trust, the person whose assets fund the trust, known as the “grantor”, typically also serves as “trustee” during their lifetime. In the trust document, typically prepared by an estate planning attorney, beneficiaries can be named to receive certain assets and/or dollar amounts in addition to numerous other options you can include such as conditional gifts (aka. “attach strings” based on the beneficiary’s behavior such as education, age, etc.). Upon the passing of the grantor, the “successor trustee” of the trust distributes the assets accordingly. Trusts are private documents, unlike wills which are public documents in probate.
Simply creating a trust is not enough to ensure your assets are transferred as you intend. The assets have to be owned by the trust, meaning account titling and ownership must designate the trust as the owner.
If you transfer ownership of an asset during your lifetime, that asset will no longer be part of your estate when you die. Giving property or assets to a family member, loved one, or organization during your lifetime means that those gifts are removed from your estate and would not be part of the probate process as your chosen heirs would already have ownership of the assets.
If gifting assets, be mindful of gift tax exclusions and limits.
Working with Trusted Professional Advisors
At PDS Planning, we work with our clients to protect and extend the legacy you work so hard to create. One of our first orders of business with new clients is making sure their accounts are titled properly, and that the accounts will transfer to the intended beneficiary, without the costs, delays, and potential public scrutiny associated with the probate process. We routinely review our clients’ beneficiary designations to ensure they remain appropriate based on changing laws and personal circumstances. During the ongoing planning process, we can recommend tax-efficient gifting strategies which many clients appreciate by seeing the positive impacts their gifts make on the people and organizations they’re passionate about. We can work together with your existing estate planning attorney or recommend some if you have not yet established legal documents such as a Revocable Living Trust or would simply like an updated review.
The information provided here is not legal advice and does not purport to be a subsittute for advice of counsel on any specific matter. For legal advice, you should consult with an attorney concerning your specific situation.
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment, strategy, or product or any non-investment related content, made reference to directly or indirectly in this newsletter, will be suitable for your individual situation, or prove successful. This material is distributed by PDS Planning, Inc. and is for information purposes only. Although information has been obtained from and is based upon sources PDS Planning believes to be reliable, we do not guarantee its accuracy. It is provided with the understanding that no fiduciary relationship exists because of this report. Opinions expressed in this report are not necessarily the opinions of PDS Planning and are subject to change without notice. PDS Planning assumes no liability for the interpretation or use of this report. Consultation with a qualified investment advisor is recommended prior to executing any investment strategy. No portion of this publication should be construed as legal or accounting advice. If you are a client of PDS Planning, please remember to contact PDS Planning, Inc., in writing, if there are any changes in your personal/financial situation or investment objectives. All rights reserved.