Whenever I give estate planning presentations, I like to start with one of the habits featured in Steven R. Covey’s bestselling book The 7 Habits of Highly Effective People: “Begin with the end in mind.” This is really what an effective estate plan does. As we start this new year, it is an opportune time for you to do the same and consider the different ways you can help ensure the efficient transfer of your wealth at your death.
Last Will and Testament
A Will is perhaps the most widely known document included in any estate plan. People mistakenly think that if they have a Will, their estate will not need to be probated when they die. However, the opposite is, in fact, true. Probate is a process by which the court supervises the collection of your property, the paying of your debts and the distribution of your remaining property as directed by your Will. Probate can be time consuming and generally takes about a year to complete. It can also be expensive with attorneys’ fees and court costs.
If you establish and fund a Revocable Trust during your lifetime, the trust assets will avoid probate at your death. The trust can be funded with a variety of assets, including bank accounts, brokerage accounts, real estate, business interests and even certain tangible personal property items. The trust also gives you the ability to control from the grave by outlining how and when your beneficiaries will receive the assets. Since trust administration is not a court-supervised process like probate, it is usually quicker and less expensive. Whoever you name as successor Trustee will assemble the assets, pay any debts you owe at your death and distribute the assets in accordance with the trust terms.
Transfer by Title
When you own assets jointly with another, either as joint tenants with right of survivorship, or as tenants by the entirety (if co-owned with a spouse in certain states that recognize this particular type of joint titling), the named co-owner will automatically inherit your interest in the asset at your death by operation of law, thereby avoiding probate. However, keep in mind that joint assets can be subject to the creditor claims of your co- owner during your lifetime. For this reason, I frequently caution clients to think twice before naming an adult child as a co-owner on their assets. Alternatively, as outlined below, you can designate them as beneficiaries of various assets, which will accomplish the probate avoidance without creating an asset protection issue.
Transfer by Contract
A contract governing a life insurance policy or annuity requires the insurance company to pay benefits upon your death to those you have designated as your beneficiaries under the contract. They will receive such death benefit or annuity payments outside of probate.
Other Will Substitutes
Bank and brokerage accounts similarly give you the option to designate beneficiaries. In the case of bank accounts, including certificates of deposit, they are typically referred to as payable-on-death accounts or Totten trust accounts. In the case of brokerage accounts, they are commonly referred to as transfer-on-death accounts. The primary benefit of these accounts is that they bypass probate and distribute the funds directly to your beneficiaries at your death. You can also name your trust as the beneficiary so that the account funds will ultimately be distributed in accordance with the terms of your trust.
Failing to employ any of the above referenced wealth transfer tools that are available to you can result in your assets being subject to the probate process and distributed according to the intestacy laws of your state of residence, rather than according to your own wishes. As you make your resolutions for the new year, resolve to do the proper planning so that you leave a lasting legacy benefitting the people and causes with whom you have had the greatest connection during your lifetime.
Vanessa J. Skinner is a shareholder with the firm of Winderweedle, Haines, Ward & Woodman, P.A., where she chairs the firm’s Wills, Trusts & Estates Department. She was recently named one of the Best Lawyers in America in the area of Elder Law for the third consecutive year. She is the host of The Power of Planning Podcast, anchor.fm/thepowerofplanning.
This article is featured in the January 2023 issue of The Growing Bolder Digital Digest.