The probate court oversees postmortem resource distributions under some circumstances. However, there are some asset transfers that are not subject to the probate process. In this blog post, we will provide an overview so you can go forward in a more informed manner.
Transfer on Death Accounts
When you open up a bank account, you have the option of adding a beneficiary. This is called a transfer on death or payable on death account. You can take advantage of this opportunity at many brokerages as well.
While you are alive, the beneficiary that you name would not have access to the funds, so you would be safe on that level. After you pass away, the beneficiary would obtain a death certificate. It would be presented to the bank and/or brokerage, and the funds would be released to the beneficiary. The probate court would not be involved, and this would not be looked upon as taxable income by the Internal Revenue Service.
There are people that think that payable on death accounts can be a substitute for a proper estate plan, at least partially. In fact, there are some drawbacks to take into consideration. Individuals will sometimes name a beneficiary and tell this person to distribute the assets among a number of different heirs. There is nothing legally compelling the beneficiary to follow these verbal instructions.
You may think that the beneficiary is completely trustworthy, but in many cases, there can be hard feelings between certain family members that can enter the picture. A beneficiary may also think that they need the money more than someone that you have selected as an heir .
To account for this, you could add multiple beneficiaries, and many institutions do allow you to have more than one. However, they typically require you to allow for equal distributions to each beneficiary. This may not be in accordance with your wishes. Since there are other estate planning tools available, it really makes no sense to accept the dangers and limitations of payable on death accounts.
Joint Tenancy With Right of Survivorship
Another way that assets can be transferred outside of probate is to utilize joint tenancy. To explain by way of example, let’s say that you own a home outright, and you want to leave it to your daughter. If you do this through the terms of a last will, the home would not be transferred until the estate had been probated by the court.
To avoid this, you could make your daughter the co-owner of the home by adding her name to the title or deed. This is the condition of joint tenancy. After you pass away, your daughter would assume ownership of the home, and probate would not be a factor.
This is the good news, but there are some serious things to think about before you embrace joint tenancy. Going back to our example, let’s say that your daughter was the target of a personal injury lawsuit. She made a mistake behind the wheel, and someone was seriously injured.
The court provides the victim with a very large judgment that exceeds the amount of your daughter’s liability coverage. Under these circumstances, the plaintiff’s legal team could go after any property that is owned by your daughter. Since she owns half of your home, that portion would be in play.
Life Insurance Proceeds
If you have a life insurance policy, the beneficiary or beneficiaries would receive the proceeds directly from the company after you die. Of course, you would have to pass away under circumstances that are covered. This transfer would take place outside of probate.
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These are a handful of assets transfers that are not subject to probate, but there are others. We will look at the best way to avoid probate in a blog post that we will be publishing in the near future.
If you would like to learn more about this and other important estate planning topics, there are some great opportunities coming up over the next few weeks. We offer free, no obligation seminars, and you can really build on your knowledge if you attend one of these sessions.
Though there is no charge, we do ask that you register in advance so that we know how many people to expect. We can also reserve your seat because these sessions fill up fast. To get all the details, visit the seminar page on this website.