For many, estate planning stops at creating a Last Will and Testament. However, not many are aware of the struggles their loved ones will face to gain possession of the assets they have inherited. Most states require that individuals, called beneficiaries, attend probate court proceedings to legally transfer inherited assets into their possession. Probate court proceedings can last up to a year, or even longer in some situations, and cost your loved ones significant money and frustration. Fortunately, most states offer several basic options to substantially lessen the hassle of the probate process. Some examples are noted below; however, we urge that you consult your attorney for laws specific to your state.
Living Trusts
Living trusts are established by an individual who transfers assets into a trust while living. The individual becomes the trustee and maintains complete control over the assets during his or her lifetime. After the trustee’s death, predetermined individuals (successor trustees) take over managing the assets or distribute the assets in accordance with the trust documents, thus avoiding the need for probate. When all property is transferred to beneficiaries, the trust ceases to exist.
Joint Ownership with Right to Survivorship
When property is owned jointly by two individuals, there is an automatic transfer to the survivor upon the death of the joint owner; this is called “right to survivorship” and is the most common method for avoiding probate. This method of property ownership works with almost everything an individual owns: cars, real estate, bank accounts, etc. A disadvantage is that if both owners die simultaneously without a valid will, the property would go to each owner’s closest relative under state law, which would require probate.
Payable-on-Death Designations
In most states, one can add a “payable-on-death” designation to bank accounts or certificates of deposit. As long as the owner of the account is alive, the individual named to inherit the account has no right to the funds. If the owner changes his or her mind about the named beneficiary, he or she can designate another beneficiary or close the account. The advantage of this option is there is no limit on the amount one can leave in the account, and it costs nothing to create the designation. A disadvantage is that alternate beneficiaries cannot be added to the account.
Transfer-on-Death Registration
Transfer on Death is a form of ownership that enables one to designate a beneficiary as a new account owner following the death of the original owner.
For example, when an individual is named as beneficiary of a life insurance policy, IRA, or pension account, the proceeds go directly to that person upon death of the owner and are not required to pass through probate.
Many states also offer a simplified probate process for small estates, though each state has different qualifications. For example, in order to qualify for the simplified process in Georgia, the estate must have no will and no outstanding debts, and all heirs must amicably agree on how to divide the property (Ga Code Ann. Section 53-2-40). However, in the state of Tennessee, an estate will qualify only if the value of any property or real estate not held jointly is $50,000 or less (Tenn. Code Ann. Sections 30-4-102).
Estate planning can be complicated. There are a number of ways to avoid probate, but depending on your unique family and financial situations, these options may not be the only answers. If your financial situation allows for the use of one or more of these methods to avoid the probate of your property, you can feel more confident that your loved ones will have peace of mind during a difficult time.
If you have any questions about estate planning, or would like to request a speaker on this topic for your organization or event, contact one of our executives below at (800) 270-9629.
