Avoiding probate on your bank accounts through beneficiary deeds, small estate affidavits , trusts, gifts and 401Ks.
Previous articles have addressed the pros and cons of having a will or a living trust and why having a will in general is better than having no will at all. Even if you do have a will, this article will address alternative means of transferring some different types of property outside the probate process, for example by using a small estate affidavit. The small estate affidavit is addressed in detail in another artilce, this article will focus more on ways to set up your financial accounts so they automatically transfers upon death.
One way to do this is by naming death beneficiaries on financial accounts. Financial assets, such as checking accounts, savings accounts, money market accounts, certificates of deposit and other instruments, allow the designation of a beneficiary upon death. The effect of this is that these assets become the property of whomever you designate as the beneficiary by operation of law. Since the property passes by operation of law at the time of death, a probate is not needed in order to transfer ownership of the property, because it is no longer a part of your estate. Some common financial assets that allow you to do this are accounts designated as POD, or payable on death. These accounts are simply accounts that upon your death, the account will be automatically inherited by the beneficiary previously named. The benefit of these accounts are that they are simple to setup. In most cases whatever bank holds the account will simply require that you fill out a form naming the beneficiary. Upon your death the beneficiary only has to go to the bank, usually with just an ID and a death certificate, and the can collect the account.
Another method of transferring accounts at death is to make joint accounts with the person whom you want to inherit the money. This simply requires making an account in the name of you and the beneficiary. This can be very helpful for someone who needs assistance managing their finances. The downside of this method is that the person named as a beneficiary also has access to the account. So it’s important that any beneficiary be someone you can trust with your money.
Another method of avoiding probate is to set up retirement account such as IRA and/or 401(k) accounts. Very similar to bank accounts, you can name a beneficiary of the IRA or 401(k) upon your death. As a single person, you are free to name whomever you want, but be aware that as a married person, your spouse may inherently have a right to some or all of the money in a retirement account.
Finally, property can be given away by simply gifting it to beneficiaries before you pass away. This type of estate planning does require some pre-planning, and is not for everyone. However, it can be very effective and extremely simple as a benefit. One drawback is that there are often limitations on the amount you can gift per year for tax purposes. So if you choose to make such gifts, you should consult an experienced CPA ahead of time.
Avoiding probate is often a priority when making an estate plan. After all, why go through additional time and money if your assets can be transferred more simply without having to complete a probate? Platt & Westby has offices in Phoenix, Arrowhead, Litchfield Park, Scottsdale and Gilbert Arizona. If you are interested in estate planning ideas to avoid probate, contact our office by calling 602-277-4441 or www.plattwestby.com for a free consultation with one of our experienced attorneys.