In your quest to avoid probate, you should consider the following types of Probate Avoidance Techniques:
POD Bank Accounts and Certificates of Deposit
To ensure that your account does not become part of the probate action, contact your bank representative to discuss your options when you wish to add a paid-on- death (POD) or transfer-on-death (TOD) beneficiary of your account. If you have the ability to add a secondary or even a tertiary beneficiary of your account, go ahead and do so.
Having a secondary beneficiary or, for that matter, a tertiary beneficiary, will ensure that your account stays out of probate in the event your primary or secondary beneficiary predeceases you. Same concept applies to the Certificates of Deposit.
Consider opening a joint account. These types of accounts permit access by both named accountholders. However, you should verify with your particular financial institution(s) what exact steps must be taken to ensure that upon the death of one accountholder, the remaining accountholder becomes the sole owner of the account. Each financial institution has its own policies concerning the type of treatment your joint account receives. Some banks presume that a joint account is owned by all of the accountholders as joint tenants with right of survivorship. Others may require you to specifically opt-in to have such treatment when you first open your joint bank account. Quite often joint accounts are opened in situations where an elderly parent relies on his or her child to do his or her banking or you may have siblings share a bank account for convenience or due to financial co- dependence. If you already have a joint account, the signature card should tell you if your account currently contains survivorship rights to the monies in the account.
Life Estate Deeds
Life estate deeds are great tools to convey property without the need for a probate action. Life estate deeds are usually formed when a property owner, the Grantor, conveys his or her interest to the property to Grantee(s), third party(ies), such as his or her child(ren) or sibling(s), etc., while still reserving a life estate interest for him or herself. Once the Grantor dies, the property passes automatically to the remaindermen, the listed Grantee(s).
Stocks and Bonds
Again, designate a transfer on death beneficiary of your brokerage account(s) as well. Otherwise, your Estate will become the beneficiary of such account(s) and a probate action will have to be commenced to transfer these account(s) to the designated beneficiaries.
Name a primary and a contingent beneficiary to inherit the account upon your death.
General Considerations When Exploring Probate Avoidance Techniques
The above list is not an exclusive list. There are other probate avoidance techniques out there. The effectiveness of these techniques will depend on your particular situation. Also, you should be aware that there are a number of occasions in which a POD/TOD account will still end up in probate. Please keep in mind that financial institutions usually place the duty on the accountholder to update the designation form – this can cause issues. For example, if the accountholder designated an individual such as the accountholder’s son as the sole beneficiary of the account and that beneficiary predeceased the accountholder, it will then be up to the accountholder to update the designation form.
However, what if the accountholder becomes incapacitated or incompetent and therefore is unable to update the designation form? What happens then? The attorney-in-fact acting under the durable power of attorney usually cannot update the designation form for the accountholder. This is one of the major drawbacks of a beneficiary designation as it usually does not provide probate protection in the event of the accountholder’s incapacity or incompetency. Also, if the designated beneficiary disclaims the interest and there is no contingent beneficiary listed, then the account will go through probate as the Estate will then become the owner of the account. Consequently, one way to circumvent this risk of probate in the aforementioned scenarios would be to establish a revocable living trust and transfer title of your account(s) to the trust. Also, a trust is a private agreement whereas a probate action can be accessible to the general public. Ultimately, a trust instrument is able to preserve assets and provide the accountholder/settlor with funds that are required for his or her care during the period of disability and generally take care of the accountholder’s needs and then distribute the funds remaining upon the settlor’s death to the designated beneficiaries as provided in the trust.
Also, the spendthrift provision in the trust instrument usually protects the trust assets from the beneficiary’s creditors. However, the trust does not protect the assets from creditors of the trust creator, the settlor. The beneficiaries of the settlor’s trust also do not have any protection against the creditors of the settlor. If creditors need to be paid after the death of the settlor, the assets in the trust may be used to satisfy the creditor’s claim.
If a beneficiary disclaims his or her interest, then the trust instrument allows for provisions which would list an alternative beneficiary of that interest or which would otherwise provide direction to the trustee for the disposition of such an interest. Revocable trusts can be amended or terminated at any time during the accountholder/settlor’s life. Upon the death of the settlor or the original trustee, the trust becomes irrevocable.