What can you do to help heirs have a smooth transition when settling your estate? Can you plan for Probate? A recent article from The Community Voice, “Managing probate when setting up your estate,” provides some recommendations. These recommendations are also covered during a free consultation with one of the attorneys at Beck & Lenox Estate Planning and Elder Law, LLC.
Joint accounts. Married couples can own property as joint tenancy, which includes a right of survivorship. When one of the spouses dies, the other becomes the owner and the asset doesn’t have to go through probate. In some states, this is called tenancy by the entirety, in which married spouses each own an undivided interest in the whole property with the right of survivorship. They need content from the other spouse to transfer their ownership interest in the property. Some states allow community property with right of survivorship.
There are some vulnerabilities to joint ownership. A potential heir could claim the account is not a “true” joint account, but a “convenience” account whereby the second account owner was added solely for financial expediency. The joint account arrangement with right of survivorship may also not align with the estate plan.
Payment on Death (POD) and Transfer on Death (TOD) accounts. These types of accounts allow for easy transfer of bank accounts and securities after the original owner passes away. When the original owner dies, all the named beneficiary need do is bring proper identification and proof of the owner’s death to claim the assets. This also needs to align with the estate plan to ensure that it achieves the testator’s wishes. Note: This is usually not something Beck & Lenox recommends, for the following reason: If the named beneficiary predeceases the original owner, the owner must quickly decide on another beneficiary and change the POD/TOD designations on the accounts impacted. If the owner dies before that can be done, those accounts will have to go through probate.
Gifting strategies. In 2022, taxpayers may gift up to $16,000 to as many people as you wish before owing taxes. This is a straight-forward way to reduce the taxable estate. Gifts over $ 16,000 may be subject to federal gift tax and count against your lifetime gift tax exclusion. The lifetime individual gift tax exemption is currently at $12.06 million, so few Americans need worry about this level.
Revocable living trusts. Trusts are used to take assets out of the taxable estate and place them in a separate legal entity having specific directions for asset distributions. A living trust, established during your lifetime, can hold whatever assets you want. A “pour-over will” may be used to add additional assets to the trust at death, although the assets “poured over” into the trust at death are still subject to probate.
The trust owns the assets. However, with a revocable living trust, the grantor (the person who created the trust) has full control of the assets. When the grantor dies, the trust becomes an irrevocable trust and assets are distributed by a successor trustee without being probated. This provides privacy and saves on court costs.
Trusts are not for do-it-yourselfers. An experienced estate planning attorney, like the ones at Beck & Lenox, is needed to create the trust and ensure that it follows complex tax rules and regulations. For more estate planning basics, go to our website and hover your cursor over Estate Planning. You will see a dropdown menu with a variety of topics to review.
Reference: The Community Voice (Nov. 11, 2022) “Managing probate when setting up your estate”