When you discuss estate planning with laypeople that have a little information, you may hear bits and pieces that can give you the wrong idea. In a lot of instances, they revolve around the concept of probate avoidance.
Probate is a legal process that would enter the picture if you use a last will to arrange for the transfer of your assets. The probate court would provide supervision during the estate administration phase.
This process would take eight or nine months to a year, and the inheritors would receive nothing during this period of time.
Another drawback is the cost factor. The executor is entitled to payment, there are court costs, and there can be legal and accounting fees, appraisal and liquidation charges, and other incidental expenses.
When you mix in the fact that probate is a public proceeding that allows anyone to find out how the estate was transferred, you are looking at some significant negatives.
It is easy to understand why someone would want to avoid probate, and you can proactively implement a probate avoidance strategy. However, as you will see, some transfers that take place outside of probate are limiting and risky.
Payable on Death Accounts
One of these simplistic notions is the utilization of a payable on death account in lieu of a well-constructed estate plan. These accounts are offered at banks and brokerages, and they are sometimes referred to as Totten trusts.
The way that it works is that you name a beneficiary when you establish the account. After your death, the beneficiary would acquire the death certificate and present it to the institution. They would then transfer the assets to the beneficiary, and there would be no need for probate.
A problem with payable on death accounts is the fact that you may be able to add more than one beneficiary, but you typically have to allow for equal distributions between them. If you tell a single beneficiary to distribute some of the assets to others, they would not be legally required to follow these verbal instructions.
You are severely limited when you use a payable on death account. For example, if you would like to provide measured distributions over an extended period of time, this is not possible.
Joint Tenancy With Right of Survivorship
It is possible to alter your home ownership documents to add a co-owner. This is called joint tenancy, and it comes along with right of survivorship.
When this arrangement is in place, a surviving joint tenant would assume ownership of the entirety of the property after the death of one joint tenant. The transfer would not be subject to probate.
That’s well and good, but there are some significant risks involved when you utilize joint tenancy is an estate planning solution. When you take this step, the person that you add to the title or deed would own half of the property as soon as you execute the document.
If this person goes through a divorce, or if they are forced to pay a settlement or judgment, the half that is owned by the joint tenant would be in play even when you are alive. A tax lien would also fit into this category.
There is also the matter of selling the property. If you decide to sell the home at some point in time, you would need the approval of the joint tenant, who would be rightfully entitled to half of the proceeds.
A Superior Probate Avoidance Strategy
You can facilitate asset transfers outside of probate in a far more effective manner if you make a revocable living trust the centerpiece of your estate plan. In addition to the probate factor, there are many other benefits.
When you weigh all the facts, you will find that a living trust is a far better choice.
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If you would like to discuss your estate planning objectives with a licensed attorney, we are here to help. You can reach our Vermont office at 802-879-7133. The number in Albany, New York is 518-389-6020, and there is a contact form on this website that you can use to send us a message.