There is a legal process called probate that plays a very big role in the estate planning field.
You may assume that assets can be distributed immediately after you die if you create a will, but this is really not the case. The estate must be probated before the heirs can receive their inheritances when a will is utilized to transfer assets.
Probate is in place to provide oversight, but it is time-consuming, and it can be expensive. As a result, it does not always benefit the heirs to the estate.
Property that is considered to be probate property would be subject to the process. However, there are some types of transfers that are not subject to the probate process. We will look at some of them in this blog post.
Payable on Death Accounts
A payable on death account is an account that has a beneficiary. These accounts are offered at banks and many brokerages. Sometimes this type of account is called a transfer on death account.
The beneficiary cannot access the resources in the account while the primary account holder is living, so there is no immediate loss of control. After the death of the primary account holder, the beneficiary would inherit the remainder that is left in the account, and the probate court would not be involved in the transfer.
Though a payable on death account can sound great on the surface, there are limitations. One of them is the fact that many institutions will not allow you to add multiple beneficiaries. Plus, those that do will often require you to allow for equal distributions between the beneficiaries. These stipulations could force you to settle for distributions that are not really consistent with your true wishes.
If you want to provide for your loved ones in a truly comprehensive and efficient manner, you would want to explore other options.
Life Insurance Proceeds
If you have a life insurance policy on your life, the company will pay the beneficiary or beneficiaries in a direct fashion after you pass away. This transfer would not be supervised by the probate court.
Joint Tenancy
Joint tenancy is the condition of co-ownership. For example, if you own your home, you could choose to make your son a joint tenant. You would add your son to the deed or title of your home, and he would own half of the property.
After you die, your son would inherit your portion of the property as well, and he would be the sole owner of the property. This transfer would not be subject to the probate process.
Once again, joint tenancy can sound like a good solution on the surface, but it is a risky proposition. When you add a joint tenant to the title of your property, this individual owns half of the property immediately, even while you are living.
As a result, if the joint tenant that you added was to encounter legal or financial difficulties, his or her portion of the property could be subject to attachment. Plus, you could not sell the property without working something out with the joint tenant, and this can limit your financial flexibility.
Revocable Living Trusts
Some people are proactive about the implementation of probate court avoidance strategies. A very effective probate avoidance tool is the revocable living trust.
You do not have to be wealthy to benefit from a revocable living trust. As the creator of the trust, you can act as the trustee and the beneficiary throughout your life. You retain control, and you can revoke or dissolve the trust if you choose to do so.
In the trust declaration you name a successor trustee to take over the role after you die, and you also name a successor beneficiary or beneficiaries. After your passing, the successor trustee would follow your instructions and distribute assets to the beneficiaries outside of probate.
There would be a level of asset protection if you create a living trust, and this is another benefit. The trust would become irrevocable after you die, so creditors would not be able to attach the assets in the trust. It would also be possible for you to instruct the trustee to distribute limited income to the beneficiaries over an extended period of time.
Attend a Free Seminar
We have a number of free estate planning seminars scheduled over the coming weeks, and you can obtain a great deal of useful information if you attend the session that fits into your schedule. You can visit our seminar page to get all the details.
Mr. Nirenstein is licensed to practice before the courts of the State of Connecticut and the United States District Court. He is a member of the Connecticut and Hartford County Bar Associations, and the Estate and Probate, Elder Law, Business Law and Real Estate Sections of the Connecticut Bar Association.
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