| Written by Wendy Mara |
One of the goals of estate planning is to help clients avoid estate planning probate. No, everyone does not have to go through probate. And no, contrary to popular belief, a will does not avoid probate. A will is not self-executing; that is, it doesn’t transfer ownership of assets to the beneficiaries automatically. A will has to be submitted to a probate court and deemed valid before it has any authority at all. Then the probate process ensues. The court oversees the process and settles any disputes that arise. Time periods for creditors to file claims, giving notices to creditors and beneficiaries, obtaining acknowledgments, and probate litigation can create great emotional and financial costs and delay.
How do you avoid probate? Whether you can avoid probate has nothing to do with the total value of your estate or whether federal estate tax is a factor. There are no Florida estate or inheritance taxes. There are two ways to avoid probate in Florida: using a revocable living trust or by using transfer instructions on each asset.
Our plan is to be sure every asset you own passes automatically upon your death. If everything passes automatically, no court order is needed to distribute your assets; they belong to the beneficiary “by operation of law” at the moment of your death.
- First, this works only if your distribution scheme is relatively simple, e.g. “Pay to A, B, & C, in equal shares, JTWROS” (see below for explanation). Banks, insurance & annuity companies, stock brokerages, etc. cannot identify heirs, make evaluations about beneficiaries’ needs, vary distributions over a term of years, or address special needs. The named beneficiaries receive the asset or lump sum immediately upon receiving evidence of your death.
- You must obtain and complete the necessary form for each asset from the holding company or institution. Different terminologies may be used, but they generally are:
“Pay on death” (POD) to…usually for bank accounts
“Transfer on death” (TOD) to…usually for stock accounts
Beneficiary(ies) and Contingent Beneficiary(ies): insurance, IRAs, 401Ks, annuities
- Always name back-ups, that is contingent beneficiaries. “What if A predeceases me?” If you don’t have a contingent beneficiary, the fallback is to your estate. Then a probate would be necessary.
- You can make the distributions equal, unequal, to whomever you wish. (Except, regarding a spouse’s rights. The only way to avoid a spouse’s “elective share” rights is through a prenuptial or postnuptial agreement. Even assets passing by operation of law are subject.to a spouse’s rights)
- Consider these options:
- “POD to A, B, & C”, in equal shares, per stirpes.” If one of the beneficiaries predeceases, that share goes to his or her children or lineal descendants. (“Per stirpes” means through the line, literally, “through the bloodline”.)
- “POD to A, B, & C, in equal shares, JTWROS.” If one predeceases, the share is divided equally among the other survivors.
- “POD to A, B, & C, in equal shares, TIC (or T/C). If one predeceases, that share passes to his/her “heirs”, as named in his/her Will, or if none, the laws of the state in which he/she lived. This would likely include the decedent’s spouse (your daughter-in-law or son-in-law) and anyone else in the Will.
- Avoid minor guardianships. In Florida, if a minor inherits more than $15,000, a minor guardianship must be established, at some expense and delay. The child will receive the inheritance automatically, in one lump sum, at age 18. Consider using a Uniform Transfer to Minors Custodial account designation instead. It may not be appropriate if the anticipated inheritance is large, but it is often preferable when it is not.
- If you make unequal designations, it might be wise to simply have a writing that says, “I know these designations are unequal. I did so on purpose for reasons well-considered by me.” That way, no one can claim it was a clerical mistake. Also, we occasionally get a report from a client that an institution refuses to accept unequal designations. It is then up to you whether you want to continue doing business with that entity. Are you going to let a bank make your beneficiary designations?
- Don’t put the “good” child’s name on the account, knowing (s)he will do “the right thing.” Aside from exposing your assets to his/her creditors, it puts a tremendous burden (and temptation) on him/her. There can also be gift tax implications when (s)he makes transfers to others. Bankruptcy, foreclosure, or divorce issues may also arise.
- Real property must be handled through deeds. Do not try to do a deed yourself. It is rare that a deed (or any document, for that matter) done by anyone other than a lawyer is correctly worded or executed. When your heirs discover the problem, it will be too late.
- Be vigilant. You must remember to monitor your assets. Anytime you open a new account or buy a certificate of deposit, etc., you must remember to have transfer designations on them.
One asset can require an entire probate administration.
- You still need a good Will. Your Will is a safety net, to be sure whatever you own at the time of your death does pass to the people you want to receive it. If you fail to have beneficiary designations on an account, which many do, the asset will have to be probated. If you don’t have a Will, it will pass according to the intestacy laws. A Will still provides peace of mind!
- You also need a good Durable Power of Attorney (DPOA) so that all these matters can be monitored and completed prior to your death. An agent may discover an asset without a beneficiary designation and be able to deal with it before your death. It is important to remember your DPOA dies with you—your agent cannot use it to “wrap things up” after your death.
Don’t delay. Contact your estate planning attorney and discuss how you can avoid probate!