In a time when your loved ones are grieving, often they are tasked with organizing, coordinating, and sometimes fighting over your estate.
Make it easier on them and plan ahead using some of the tools below.
What is Probate?
Probate is the process by which a deceased person’s will is validated, and the general organization and distribution of that person’s estate.
During probate, if a person died with a will, the court validates the will and then formally appoints the person named in the will to direct (executor) the deceased person’s estate. This includes collecting assets, paying any outstanding taxes and debt, and distributing whatever is left to the beneficiaries listed in the will.
If a person died without a will, the court will appoint an executor to collect the assets, pay the taxes and debt, and distribute the remaining assets according to state law. What needs to be done with any real estate is determined by the county that person lived in.
The probate process is expensive, so anything you can do to speed up the process or avoid it, the better. You will go through probate whether you have a will or not, though it takes a lot more time when the individual died without a will.
Transfer on Death Designation
A transfer on death designation also referred to as a payable on death designation, is something you add to an account so your assets immediately go to your beneficiaries when you pass away without having to go through probate.
A TOD designation can be added to a brokerage account, individual stocks and bonds, and bank accounts.
When the individual with the TOD designation passes, the beneficiaries usually have to create an account in their name in order to transfer the assets.
Will
A will is a legal document, usually created by an estate attorney, in which the individual or couple list who will be the executor of the estate, guardianship of any minor children, arrangements for surviving pets, assets and property owned, insurance policies, beneficiaries, and what is to be done with the assets and property when the creators have passes.
A will lists all of the property and assets, even the ones that do not need further instructions for distribution to the beneficiaries (retirement plans, life insurance policies, TOD designated accounts).
Trust
A trust is a legal entity created by an estate attorney where the grantor (person creating the trust) appoints a trustee (or several) to follow the rules of the trust.
In a trust, the grantor can very specifically list what they want to be done with their assets while they are alive and/or when they pass away. They can list each asset separately and which beneficiary receives that asset or they can list them all at once and pick how those assets will be distributed to the beneficiaries.
They also have the ability to dictate how the care and financing for a minor, or a child with disabilities will be implemented.
Trusts are costly to set up but are a very useful estate planning tool. It’s also the only way to avoid probate, as long as the trust is the owner of the assets.
Life insurance proceeds
The majority of the time, life insurance avoids probate. There are two exceptions, however.
If the beneficiary named in the life insurance policy passes away and there are no contingent beneficiaries, the estate will receive the proceeds. The other is if the estate is directly named as the beneficiary.
Joint ownership
There are two types of joint ownership:
- With rights of survivorship – when one of the owners dies, the surviving owner receives the decedent’s portion.
- Tenants in common – when one of the owners dies, their portion is included in their estate. The other joint owner(s) have no right to that portion.
Conclusion
Probate is time-consuming and expensive. For the sake of your loved ones, namely the ones who will be taking care of things when you pass, plan ahead and make things as easy as possible.
I previously wrote an article about where your money goes when you die that goes into much more detail about wills and trusts. Give it a look.
If you’d like to learn more about estate planning, send me an email! I’d be happy to answer any questions you may have.
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Jacob Sensible is a financial advisor with decades of experience in the financial planning industry. His journey into finance began out of necessity, stepping up to support his grandfather during a health crisis. This period not only grounded him in the essentials of stock analysis, investment strategies, and the critical roles of insurance and trusts in asset preservation but also instilled a comprehensive understanding of financial markets and wealth management. Jacob can be reached at: jake.sensiba@mygfpartner.com.
That’s good to know that in joint ownership the other person would receive your share when you die. I feel like that would be a good way to leave some assets to someone when you die. I’ll have to consider getting someone to help me set something like that up when I get older.