CMH Blog Series:
Tips for Minimizing Probate Costs and Delays
Tip #2 How to Title Assets to Avoid Probate
Another estate plan strategy to ease the burden for your personal representative, is naming beneficiaries or joint owners on certain assets. This strategy avoids probate altogether by allowing the assets to pass after your death to your desired heirs. This strategy, in addition to a last will and testament, will assist in a smooth probate process or avoid it altogether.
For cash held in bank accounts, the most common way to devise these assets outside of probate is to establish a joint account with a right of survivorship to the heirs you wish to disburse those amounts to upon your death. With your permission, the bank may add desired joint owners as signatories. While it is useful to the surviving account holders to instantly have access to the funds upon your death, it should be noted that each individual who is added to the joint account equally owns the full balance of the account with no restriction. This means those joint owners would be entitled to withdraw the full balance of the account and do with it as they wish. Consequently, this method is more commonly utilized by married couples. For minors, you should also speak with your estate planning attorney about the advantages of a Totten Trust and the Uniform Gifts to Minors Act as methods that allow funds to be dispersed outside of probate without the threat of an unwanted full withdrawal from a joint owner.
Securities, Life Insurance, and Retirement
Similarly, many stockbrokers and banks allow “transfer on death” or “payable on death” accounts. These accounts are similar to right of survivorship but allow the firm to transfer the securities to the named beneficiaries upon presentation of a death certificate. Compared to joint bank accounts, a transfer on death account allows the owner to control the assets within the account during their lifetime without access or entitlement by the heir. However, upon death, the assets pass to the beneficiaries outside of probate and avoids liquidation of the account by selling off the securities. This may make it possible to retain the securities and avoid capital gains tax.
Life insurance policies often pass outside of probate naturally per their terms. Contact a professional financial planner for advice on different ways to invest assets in life insurance policies that become payable upon death to beneficiaries.
It is also possible to avoid probate proceedings with real estate assets by titling ownership in various ways through applicable deeds. For example, an individual could draft a deed placing title in that individual’s name under rights of survivorship. Upon death, the other named joint tenant in the deed will own full title as a matter of law. However, as with joint bank accounts, the grantor may lose complete control over the right to sell, lease, or mortgage the property. It also opens up the grantor to the threat of creditors of the joint tenant. A life estate deed may also accomplish the goal of avoiding probate without these disadvantages. A life estate permits the grantee to fully enjoy the property during their lifetime. Upon their death, the property passes to remaindermen. By granting oneself a life estate in property and naming surviving heirs as remaindermen, the owner can avoid probate altogether for that particular property while also avoiding the loss of control over the property like in a joint tenancy.
Each estate plan is different. The general advice in this article applies to moderate to small estates. It should be noted that large estates may wish to avoid these strategies due to applicable federal taxes. Florida Homestead laws could also apply, affecting the passing or sale of certain real estate. Credit shelter trusts or other tax avoidance plans may be more appropriate. Contact an estate planning attorney at Crawford, Modica & Holt if you have questions regarding your estate.