Some words create anxiety for people. Probate is one of those words. The word evokes a murky shadow process that seems burdened by overly intrusive government actions. None of that is actually true but probate is a consistent concern for most of my clients. I thought I would set out some guidelines for someone looking to engage in some estate planning.
“I want to avoid probate!”
Ok that is a noble goal so let’s take a look on how you can achieve this goal.
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Identify if the asset has a beneficiary. Life insurance, annuities, IRAs, and 401ks are typical assets that have a beneficiary listed so these assets transfer to the named beneficiary without Probate! Sounds great but if the recipient of that asset is a young beneficiary, then future problems of asset management might be a concern. That is where a trust can be effective way to eliminate a young beneficiary receiving an asset that would be better suited for an older person.
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Checking accounts. A mistake that most elderly people make is adding a child to their accounts. They usually want to avoid probate but fail to understand that adding just one kid to their accounts makes the account the property of that child on their death. The person wants to have their checking accounts go to their beneficiaries outside of probate then go to the bank and make all of your intended beneficiaries payable on death with the bank. If you are in need of assistance, create a joint account that one of your kids is a joint owner so that that one child can render you assistance on your bills but it is limited to one account that would pass to that one child on your passing.
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Real Estate. Most people assume that real estate is a probate asset. It actually passes to the beneficiaries by operation of law or by will outside of probate. We use a variety of techniques to handle real property from transfer of death deeds (title passes to beneficiaries previously named in a deed but the beneficiary receives the step up in tax basis and the deed can be revoked by the owner prior to death if something changes). Another technique is a revocable trust with a deed to the trustee while you are alive then that real estate can be sold or conveyed to a previously named person on death. Recently, I have been drafting a lot of wills, powers of attorney and advanced medical directives with a transfer on death deed for those clients that have limited resources such as one primary residence and a simple checking account type of estate. Usually, this plan is effective for a person with grown children and direct distributions. Clean and effective.
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Investment accounts. This can be treated like a checking account similar rules but the payable on death is referred to as a transfer on death. The joint owner rules are the same. Be careful that you don’t create a conflict by adding one kid leaving others out inadvertently. The key is to plan ahead and work closely with your attorney to draft the proper documents as well as a comprehensive review of beneficiaries.
Albert R. Hartley