Justin Trent, Vice President, Senior Trust & Estate Planner
Probate is the legal process by which your assets are transferred to your heirs after your death. Depending on state laws and the complexity of your assets, the probate process can be time-consuming and stressful for your loved ones at an already difficult time. Fortunately, you can sidestep this process with careful estate planning. Setting up your estate such that your assets can pass directly to your intended beneficiaries is one way to minimize time spent in probate. Here are some practical strategies for ensuring your estate plan works smoothly.
Types of Ownership
The manner in which you own your assets can simplify the need for probate. Sole ownership, joint ownership, transfer on death designations, and revocable trusts have different legal effects, and will impact the need for probate after your death.
If you own assets individually and in your own name, those assets will need to pass through the probate process unless you add a “transfer on death” (TOD) designation or move them into a revocable trust. Sole ownership in your individual name without a TOD designation is generally to be avoided unless you have a specific need for that form of ownership.
Many people own assets jointly with others. Married couples commonly own their marital residence jointly, or a parent may hold a checking account jointly with a young adult child. Although there are different forms of joint ownership, depending on state law, the most common form of joint ownership will include a “right of survivorship”—upon the death of one joint owner, the asset will pass to the surviving joint owner without the need for probate. During their lives, each joint owner has full access to the asset.
Whether an asset is in your sole name or held jointly with another person, adding a TOD designation to an asset allows you to specify where that asset passes when the current owner(s) have died. A common example of an asset with a TOD designation is a retirement account or a life insurance policy—both of those assets will have paperwork that names your beneficiaries. Depending on state law, an asset with a TOD designation does not usually require probate.
With modern estate planning, many people use revocable trusts to hold their assets. A revocable trust is a legal structure that takes ownership of an asset, in which the trustee (usually the person setting up the trust, with or without their spouse as co-trustee) has control over the asset. If you have titled an asset in the name of your revocable trust, that asset will pass according to the terms of your revocable trust without requiring probate.
Here are some other assets and how probate affects their transfer:
Real Estate
If you own real estate in your own name, you might consider executing a “transfer on death deed” to add a TOD designation for that property. This deed will identify the beneficiary (or beneficiaries) who will receive the real estate at your death, without the need for probate. During your lifetime, you can still sell the property or otherwise use the property as you wish without interference from the TOD designation. (Note: In some states, real estate assets do not need to be probated by default; in these states, retitling your individually owned real estate may still help simplify matters for your beneficiaries in the future.)
If you own real estate jointly with another person, then the asset will pass to that joint owner at your death. You probably do not need to retitle this asset to avoid probate. If you are concerned about the possibility of you and your joint owner dying simultaneously, you might consider executing a transfer on death deed for this property. With this technique, the TOD designation would only take effect after you and your joint owner have died. The TOD designation can be changed at any time by executing a new deed.
Financial Accounts
Retirement accounts rely on beneficiary designations, but you may wish to review the titling of your financial accounts, including savings, checking, and investment accounts, by checking the owners listed on your account statements or by contacting your bank or financial professional.
Many financial institutions will allow you to add a TOD designation to individual or joint accounts. Any accounts that you own in your individual name may need to be probated. If you have any individually owned accounts and you already have a revocable trust, you may wish to retitle these accounts into your revocable trust instead of adding a TOD designation.
Automobiles and Other Vehicles
This category of asset is typically a trigger for probate. As with other assets, cars, boats, and other vehicles that you own jointly will likely pass to your surviving joint owner at your death.
Some states permit you to add a TOD designation to the title of your vehicles. Consult with your state’s Department of Motor Vehicles, or other relevant government agency for other vehicles, to determine if they offer a TOD option.
Tangible Personal Property
Your personal effects, household furnishings, and other tangible personal property can be “re-titled” to avoid probate, if state law allows. The most common technique for avoiding probate for this category of asset is to execute an “assignment of tangible personal property” into a revocable trust. This document purports to transfer your personal property, which has no title or other record of ownership, into your revocable trust. Consult with your estate planning attorney about the best approach for avoiding probate of these assets.
Business Entities
If you own an interest in a business entity (such as a limited liability company, corporation, or partnership), you may be able to add a TOD designation to your share in the business. Almost all states have passed some form of the Uniform TOD Securities Registration Act, which allows TOD designations for a variety of business interests. Alternatively, you may be able to own such interests jointly, in which case it would transfer to the joint owner like other asset types.
Be mindful of any shareholder restrictions that may apply to your ownership interests. There may be restrictions in the governing documents of the business that limit your ability to transfer your interests at your death or during your lifetime. Gather any corporate documents for any business interests that you own, then consult with your estate planning attorney about adding a TOD designation to these interests.
Working with an estate planning professional can help get your assets set up in ways that reduce the chances your estate will have to spend time in probate. Contact a D.A. Davidson Trust Company estate planner for more information.
This material is intended for general consumer educational purposes and is not intended to provide legal, tax or investment advice. Always consult your tax advisor for specific tax advice.
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