The process of probate will be necessary if you use a will to state your final wishes with regard to asset transfers. Some people are aware of this and some are not. The probate court provides supervision when someone passes away with or without a will.
This leads them to the belief that all asset transfers are subject to probate, but this is not the case. Some transfers do not have to go through probate, and we will take a look at them in this post.
Payable on Death Accounts
A payable on death account is an account with a beneficiary, and these accounts are alternately referred to as transfer on death account. When you start an account at a bank or a brokerage, you can name a beneficiary to make it a payable on death account.
You would have sole access to the assets while you are living, but it is possible to establish a payable on death account jointly with one or more people.
After the death of the primary account holder or holders, the beneficiary or beneficiaries would obtain a copy of the death certificate. They would present it to the institution, and the funds would be released to them.
In addition to the payable on death accounts that are offered by financial institutions, you can choose a payable on death option when you are registering your motor vehicle in California.
When you have an individual retirement account, you can name a beneficiary, or multiple beneficiaries. The transfer to the beneficiary would not be subject to probate, so in a sense, these are also payable on death accounts.
Joint Tenancy With Right of Survivorship
You can change your home ownership documents to create a joint tenancy. If you do this, you would be adding a co-owner to the property. They would inherit your interest in the property after your death, and probate would not be a factor. However, there are many potential negative results when planning via joint tenancy that most people are unaware of. Careful research should be used before using this planning method.
Life Insurance Proceeds
If you take out a life insurance policy on your life, you would designate a beneficiary. After your death, the death certificate would be presented to the company by the beneficiary.
They would receive the proceeds outside of probate if everything is in order and you passed away under covered circumstances. Please keep in mind that although life insurance proceeds are income tax free, they may be subject to estate tax.
Revocable Living Trust
Though these methods will facilitate probate avoidance, there are some drawbacks and limitations. When it comes to joint tenancy, the person that is added to the title or deed would own half of the property immediately.
If they are sued, their portion of the property would be available to the litigant. The property would be in play during divorce proceedings, and the IRS could seek to attach their share of the property.
Another negative is the fact that you would not be able to sell the property unless you get the cooperation of the joint tenant, and they would be entitled to half of the proceeds.
When a payable on death account is used, you do not have the ability to include any safeguards with regard to reckless spending or asset protection. If you tell the beneficiary to share the money in a certain way, they would not be legally compelled to follow the instructions.
You can steer clear of these negatives and avoid probate in a more effective manner if you establish a revocable living trust. While you are living, you would be the trustee, so you would control the assets.
After your passing, the successor trustee that you name would distribute the assets to the beneficiaries in accordance with your wishes. You do not have to provide lump sums all at once, and the principal would be protected from the beneficiary’s creditors.
Distributions to the beneficiaries would take place outside of probate, so you would accomplish your goal.
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If you are ready to work with a Burbank, CA estate planning lawyer to put a plan in place, our doors are open. You can send us a message to set up a consultation appointment, and we can be reached by phone at 818-937-2335.