I say it all the time, trying my best to spread the word that having a Last Will and Testament DOES NOT allow your family to avoid the probate court upon your death. But what does? How can you effectively prepare your affairs in a way that ensures your assets will pass to your family or other beneficiaries without the probate court’s involvement when you die? Here are a few options, as well as the pros and cons of each:
Joint Ownership. You can place certain assets in a joint ownership arrangement during your lifetime.
Pros: Yes, if certain assets are owned jointly with another person as “tenants by the entireties,” they will pass to the joint owner upon your death immediately by operation of law.
Cons: However, giving another person ownership of an asset means you no longer control it. Secondly, if it’s your intention that, upon your death, the joint owner gives a portion of the asset to other beneficiaries, there’s no legal requirement that they do so, and there are also potential gift tax considerations. Finally, it’s important to note that you can’t place IRA’s or 401K’s in a joint ownership arrangement with another person.
Beneficiary Designations. With regard to many types of assets (for example, bank/retirement accounts and life insurance policy proceeds), you can simply list the name(s) of the person(s) you want to receive the asset upon your death.
Pros: This will avoid probate altogether, and the named beneficiary will receive the asset by providing your death certificate and their identification to the bank/financial institution. These beneficiary designations must be completed directly with the specific bank, financial institution, or life insurance company that holds the account/policy.
Cons: The drawback with this approach, however, is that it can create problems if your named beneficiary dies before you or if, perhaps, the named beneficiary is a minor or a disabled person. These potential scenarios may require probate or guardianship before the account/proceeds can be transferred. And importantly, this approach doesn’t allow you to avoid probate if your desire is to hold these assets in trust for a beneficiary after your death; nor can you name beneficiaries in this manner for homes/land or business interests.
Revocable Living Trust. The third way to avoid probate is by creating a Revocable Living Trust. As an attorney practicing law in this area for over 20 years, this is in my professional opinion the most effective way to avoid probate upon your death.
Pros: If your assets are held in or properly coordinated with a Revocable Living Trust, they will avoid the probate court. Your successor trustee can immediately step in and distribute your assets to your family and other beneficiaries. A Revocable Living Trust can effectively hold and/or transfer all types of assets, including bank/retirement accounts, life insurance policy proceeds, homes/land, business interests, and tangible personal property. You can also create contingent trusts for certain beneficiaries (for example, minors, special needs children/grandchildren, or spendthrifts).
Cons: There are no cons with a Revocable Living Trust, other than perhaps the time and energy it takes to create one.
If I can answer any questions you may have about the most effective and efficient way to plan for your family’s future, please contact me at (813) 244-7758 or Ross@RossSpanoLaw.com. Cheers, Ross Spano