Financial Advice for Retirement, Social Security, IRAs and Estate Planning

Estate Planning Without Wills & Trusts – Part 2

In Part 1 of this article, I shared some of the avenues through which you can ensure transfer of assets without the need for wills and trusts.

So this week, let’s continue the discussion with more ways to avoid probate and transfer property… starting with:

Bank accounts. Though once obscure, payable on death (POD) bank accounts have become very common.

You simply complete a form telling the bank who should inherit the account after you pass. Most states allow PODs, and most banks have standard forms for them.

With a POD, you are the only one with legal rights to the account while you’re alive. There’s no concern about the beneficiary accessing the funds or transferring rights to someone else.

After your death, the beneficiary should be able to claim the account by showing the bank a death certificate and proof of identification.

There might be a waiting period before the beneficiary actually receives the account or its value. The title to the account doesn’t change. Instead, as the name says, the account value is paid to the beneficiary.

There are limits to PODs. In many states, a spouse has marital rights to a minimum percentage of the other spouse’s estate.

Creditors also might have claims against the estate. Either of those claims is superior to the beneficiary’s rights to a POD.

Other financial accounts. A transfer on death (TOD) account is very similar to a POD. The TOD is allowed in every state except Louisiana and Texas as a way to transfer brokerage accounts or individual securities without probate.

Even if you live in a state that doesn’t recognize a TOD account, you still can use it when your broker or the issuer of a security is located in a state that recognizes TOD.

As with the POD, simply tell the broker or issuer what you want to do, and you’ll be asked to complete a TOD designation form.

You can name multiple beneficiaries to a TOD, and each will inherit equal rights to the account.

If one beneficiary dies before you do, the account will go equally to the surviving beneficiaries unless you change the designation form.

Your broker might let you also name an alternate TOD beneficiary who will inherit the account if the initial beneficiary doesn’t survive you.

The TOD is claimed by the beneficiary after your death the same way a POD is. Also, your spouse or creditors might have rights to the TOD that exceed the beneficiary’s rights.

If you own individual securities, the issuers might have forms that allow you to designate a TOD beneficiary.

For U.S. government bonds, you are able to designate a beneficiary when you register ownership of the securities. On the registration form, after your name write “payable on death to” followed by the name of the beneficiary.

Automobiles, boats and more. Beneficiary designations for motor vehicles similar to a TOD are allowed by 14 states, and a few states allow them for boats or other property for which legal title must be registered.

The rules and the process usually are the same as for TODs. When registering your title, ask about designating a beneficiary. If the state allows it, you complete the appropriate form.

Legal title passes to the beneficiary free of probate after your death. You still will be legal owner of the asset during your lifetime and can transfer title to someone without the consent, or even the knowledge, of the beneficiary.

You can change your beneficiary or eliminate beneficiaries simply by applying for a new certificate of ownership or registration.

Retirement accounts and annuities. The beneficiaries of these accounts are named when you opened the accounts or subsequently when you updated the beneficiary designation form. Your will doesn’t affect who inherits these accounts.

It is important to review your beneficiary forms periodically to ensure they are up to date and correct. There are a few points to keep in mind as you consider these strategies.

When you live in a community property state, the rules might be different. Your spouse might be entitled to a share of all your assets by law.

In other states, your spouse or creditors might have rights that are superior to a beneficiary’s rights. Of course, be sure your executor or beneficiary knows what you’ve done so that the asset will be inherited as you intended.

The assets still must be inventoried and valued to determine if the federal estate tax is owed. Avoiding probate isn’t the same as avoiding the estate tax.

Once you establish one of these forms of title, your will has no effect on that asset. If you change your mind, you have to change how you titled the account or registered the asset.

Of course, no matter how many of these strategies you use to avoid probate, you still need a will. There will be assets that can’t be transferred probate-free using these or other tools, and there are other issues that can be handled only through a will.

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