The process of probate is primarily the distribution of assets that are in the decedent’s name alone, which pass by his or her Will; and assets jointly held do not pass under a Will in most circumstances. There are strategies available to avoid probate.
One such strategy includes maintaining property jointly with another person, as there is then a presumption that the account will be joint for survivorship purposes, and the assets will not pass pursuant to the terms of a Will. In establishing any account with more than one name, it is important to determine whether the intention is to ensure that the asset passes to the surviving joint owner or whether the account is really for convenience only.
Transfer on death (TOD) is also an option to avoid probate upon death. Here, the account, which is normally from a brokerage or stock, is in a person’s name alone, rather than in joint names, which gives another person certain rights. The account then transfers upon the death of the owner. In this manner, the assets remaining in his or her name are merely transferred to a new account in the name of the beneficiaries under the TOD account. This could be one person, a number of individuals, or perhaps a trust receives the assets upon death, and therefore, avoids the probate process.
A similar situation occurs with bank accounts such as In Trust For (ITF) or Payable On Death (POD.) In these cases, upon submission of a certified death certificate, the bank merely writes a check to the individual who is the beneficiary of the account. This also avoids probate, and the assets do not pass pursuant to the terms of a will or trust, unless the trust is the beneficiary of the POD account.
A Trust, funded during one’s lifetime, may be another alternative. Since the name on the bank account or stock must be the name of the trust, as long as an asset is transferred to the trust prior to death, it will not pass through probate. A trust may be a better alternative in the event that the donor wishes to maintain the funds in it for some time period. Possible purposes may be for the benefit of a minor child, for an incapacitated spouse, a parent, or any other situation whereby the goal of the plan is to not allow someone to receive a lump sum until a required later age or date.
While a trust may be a better alternative in some cases, it must be understood that there are adverse consequences of utilizing a trust, such as trustee’s fees, annual income tax returns, possible court accountings, and filing an account with each beneficiary on an annual basis.
Most people prefer to avoid probate to maintain privacy, while also minimizing fees and expenses, but very often, it may be more advantageous to establish a scheme of distribution through a Will if there are a significant amount of beneficiaries and charities who are supposed to receive either a specific bequest or percentage bequest. Also, in most states, creditors have a limited time to file a claim against an estate when it is probated. In some states, if the estate is not probated, then the statute of limitations regarding claims may be extended for a longer period of time than otherwise would have been available.
By: Hyman G. Darling, Esquire
In some situations, if a person is on Social Security Income, public assistance within a state, or possibly some form of disability, he or she may be entitled to have a nominal amount of assets. In these situations, if that individual is 65 years of age or younger, he may establish a so-called “payback” trust that allows qualification for benefits by placing his funds in an irrevocable trust. A third party trustee will invest the funds, file the necessary tax forms, account to the governmental authorities, and also attend to discretionary payments as necessary or required. This may occur when a person receives disability or an inheritance, wins the lottery, or receives a larger settlement that could otherwise disqualify them for their benefits.
When it comes to preparing your children for the possibility of inheriting wealth, you don’t want your hard work in maintaining financial success to go by the wayside because your child is unprepared for the responsibilities associated with inheritance.
Changes in your family situation often warrant an update to your current estate plan. A divorce should always signal that change is needed. In Massachusetts, a divorce revokes the provision in a Will or Trust referring to a former spouse, and therefore, it is not uncommon for a person to revisit their Will after a divorce.