Almost all of my estate planning clients have one thing in common: they want to avoid probate, or limit it as much as possible.
Probate is a court-supervised legal process for transferring the assets of a deceased person to his or her heirs. Probate is required any time a person dies with assets in his or her name, regardless of whether or not the person has a valid will. Because of the expense, delays and hassle of probate, many people prefer to avoid probate if possible.
So how do you avoid probate?
There are several ways to avoid probate, but all of them are based on the same principle: Probate can only be avoided by titling your assets so that they pass to someone else at your death. If you die owning any assets that do not pass to someone else at your death, probate will be required to transfer those assets.
Why Joint Accounts Are a Bad Idea
One of the biggest pitfalls in correctly titling your assets is joint accounts. For example, you may want your daughter to have access to your bank account to help manage your finances especially when you are not feeling well. You add her as a joint account holder based on the advice of your banker. This is very common advice from the banker since it’s easiest for the bank, but may not be best for you. Here’s why. When you die, regardless of the fact that your will directs your property to pass in equal shares to all of your children, all of the money in the account goes to your daughter. She alone has the authority to decide whether to pass it along to her siblings, or whether to use the funds for your final expenses, like a funeral or unpaid bills. A common rationalization for daughter keeping the money is compensation for taking care of you, and the misguided belief that it’s what you wanted. As you can imagine, it creates great family conflict and doesn’t comply with your wishes.
A Better Way To Title Bank Accounts
Title all accounts with a durable power of attorney. This agent can access bank accounts, pay your bills, sign contracts, handle financial transactions or sign legal documents for you, so long as their actions are consistent with your best interest. An elder law or estate planning attorney will be able to assist you in drafting an effective durable power of attorney. In addition to adding your agent to your account, you should also title your account with Pay On Death beneficiaries, being all your heirs. This will allow your daughter to help you with your finances while you are alive, but the funds in your account will pass to those you wish to inherit upon your death. A word of caution, be very careful who you pick as your agent. Even though Florida’s exploitation laws make it a crime to abuse powers under a durable power of attorney, it is very difficult to recover funds after they have been stolen!
Consider an Enhanced Life Estate Deed
Only available in a few states, a Florida Enhanced Life Estate Deed can help avoid probate for your real property, speed up the transfer of a property upon death, maintain the ability to use the fair market value of the property at the time of death as a cost basis (lowers capital gains taxes upon sale), and maintain Medicaid eligibility. You deed your house back to yourself and upon your death, it goes to your designated beneficiaries and does not pass through probate. If you have a mortgage on your property, get approval from the mortgage company prior to completing an enhanced deed. A good elder law attorney or real estate attorney will be able to help you with this deed.
Using Designated Beneficiaries on Other Assets
A way to avoid probate for investment accounts, individual retirement accounts, and life insurance is to designate beneficiaries and contingent beneficiaries on these assets. Investment accounts sometimes use the term, Transfer On Death beneficiary designation. Contact your investment broker or insurance professional to be sure you have designated a beneficiary, and then add a contingent beneficiary. If you have more than 1 person to designate, simply add all their names. You retain complete control of your property while you are alive, and you can change the beneficiary at any time. At your death, the property is transferred directly to the beneficiary, outside of probate. Speak with your elder law attorney or estate planning attorney to learn more about the advantages of such designations.
We have helped hundreds of clients’ families avoid probate, while making sure inheritance monies are distributed according to client instructions. It creates an easier end of life situation with families focusing on what’s important-celebrating the life of a loved one.