Probate can tie up the estate for months and be an added expense. Some states have a streamlined process for less valuable estates, but probate still has delays, extra costs, and work for the estate administrator. A probated estate is also a public record anyone can review.
Forbes’ recent article entitled “7 Ways To Avoid Probate Without A Living Trust” says that avoiding probate often is a significant estate planning goal. You can structure the estate so that all or most of it passes to your loved ones without this process.
A living trust is the most well-known way to avoid probate. However, retirement accounts, such as IRAs and 401(k)s, avoid probate. The beneficiary designation on file with the account administrator or trustee determines who inherits them. Likewise, life insurance benefits and annuities are distributed to the beneficiaries named in the contract.
Joint accounts and joint titles are ways to avoid probate. Married couples can own real estate or financial accounts through joint tenancy with the right of survivorship. The surviving spouse automatically takes full title after the other spouse passes away. It is not a good idea to have joint accounts with a child. With a joint account naming your child, you become liable for your child’s problems, i.e., divorce, bankruptcy, lawsuits. Also, the child will automatically inherit the account when the parent passes away without probate. This child does not have to share, and if you intend more than one person to benefit, it may not happen. If the parent cannot manage their affairs at some point, the child can handle the finances with a power of attorney.
Note that all joint owners have equal rights to the property. A joint owner can take withdrawals without the consent of the other. Once the joint title is established, you cannot sell, give or dispose of the property without the permission of the other joint owner.
A transfer on death provision (TOD) is another vehicle to avoid probate. You might come across the standard term Totten trust, another name for a TOD or POD account (but no trust is involved). After the original owner passes away, the TOD account is transferred to the beneficiary or changed to their name once the financial institution gets the death certificate.
You can name multiple beneficiaries and specify the percentage of the account each will inherit. However, beneficiaries under a TOD have no rights or access to the account while the owner is alive.
Reference: Forbes (March 28, 2022) “7 Ways To Avoid Probate Without A Living Trust”