You may hear that an estate must pass through probate before the heirs can receive their inheritances. This is a legal process that takes place under the supervision of a court, and it is necessary if you use a will to facilitate postmortem asset transfers.
The probate court will also preside over intestacy cases. This is the situation that ensues when someone passes away without a will or any other asset transfer documents.
This process serves a purpose because it gives interested parties an opportunity to contest the terms of a will. Final debts must be paid during probate, so creditors are given time to come forward, and this is another one of the functions of the probate process.
Even though it is not inherently negative, rightful inheritors are not going to welcome this legal procedure. They do not receive their inheritances until the estate has been probated and closed by the court, and it will usually take eight or nine months at minimum.
Expenses accumulate during probate, so the inheritances are reduced, and interested parties can access the probate records to find out how the resources were distributed. People often take steps to avoid probate because of these drawbacks.
Transfer on Death Accounts
If you open an account at a brokerage or a bank, you can make it a transfer on death account. The term “payable on death” is alternately utilized, and when you have this type of account, the beneficiary that you name would inherit the resources after your passing.
The probate court would not be involved in the transfer, so the pitfalls would be avoided.
You can name multiple beneficiaries if you choose to do so, and they do not necessarily have to receive equal percentages. It is also possible to open a payable on death account jointly with others, but all of the primary account holders would have equal access to the assets.
In addition to the payable on death accounts that banks and brokerages offer, your individual retirement account is essentially a transfer on death account because you can name a beneficiary.
You can actually designate a beneficiary when you register your vehicle in the state of California, and there are a number of other states that offer this option.
Revocable Living Trust for Probate Avoidance
A transfer on death account is no match for a revocable living trust if you are interested in probate avoidance. If you establish this type of trust, you would be the trustee while you are living, so you would maintain complete control of the assets at all times.
Your heirs would be the beneficiaries, and you would name a successor trustee to manage the trust after your passing. The trustee can be one of the beneficiaries or someone that you know personally, and you can alternately use a professional fiduciary.
One of the benefits is the ability to prepare for possible incapacity. You can give the successor trustee or another individual or entity the power to act as a disability trustee in the event of your incapacitation.
Another advantage is the ability to include asset protection. A spendthrift provision would make the trust irrevocable after your passing, and the beneficiary would not have access to the principal. Their creditors would be in the same position, so the assets would be protected.
You do not have to allow for distributions of lump sum inheritances all at once. If you want to prevent reckless spending, you can instruct the trustee to provide incremental distributions over an extended period of time.
After your passing, the trustee would be able to distribute the assets outside of probate. A living trust is a very effective and versatile estate planning tool, and they are widely utilized by people that understand the benefits.
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When you work with our firm, you will feel comfortable from the start, and we will help you devise a plan that ideally suits your needs. A living trust is the best choice for a wide range of people, but we will make sure that you understand all of your options.
If you are ready to get started, you can schedule a consultation at our Burbank, California estate planning office if you call us at 818-937-2335. You can alternately send us a message through our contact page, and if you reach out in this manner, you will receive a prompt response.