Before we look at payable on death or transfer on death accounts, we should explain what probate is and why people try to steer clear of it.
If you utilize a will as your asset transfer vehicle, the executor that you name in the document would act as the administrator after your passing. They would not be able to handle the administration tasks independently without supervision.
The will would be admitted to probate, and the court would supervise while the executor is conducting the business of the estate. This will involve the payment final debts, so creditors must be notified, and they are given time to come forward seeking payment.
The executor will identify and inventory the assets and prepare them for distribution to the heirs. Appraisals and liquidation of property will be necessary, and these things take time.
There is a proving of the will while probate is underway, so the court will hear arguments that may be made by interested parties that want to contest the will. Probate is a public proceeding, so anyone that is interested can obtain the records to find out how the assets were transferred.
Probate costs add up to consume between three and seven percent of a typical estate, so the inheritances are reduced. Ultimately, the inheritors will receive their bequests, but it will take about eight or nine months at minimum in most cases.
Payable on Death Accounts
You can open up a payable on death account at a bank or a brokerage. When you do this, you simply add a beneficiary, and they would inherit the assets after you are gone.
The court would not be involved, so the drawbacks of probate would be avoided.
It is possible to name multiple beneficiaries, and you can split up the transfers in different percentages if you choose to do so.
In addition to banks and brokerages, the transfer of an individual retirement account to a beneficiary would not be subject to probate. There are 19 states that offer transfer on death vehicle registrations, but Michigan is not one of them.
Living Trust for Probate Avoidance
A transfer on death account will facilitate probate avoidance, but a living trust is a more comprehensive probate avoidance tool. You would act as the trustee while you are alive and well if you establish a living trust, and it would be revocable, so would be able to dissolve the trust at any time.
When you are drawing up the trust terms, you name a trustee to succeed you, and your heirs would be the beneficiaries. Any adult that is willing to assume the role can act as the trustee from a legal perspective, and there are professional fiduciaries that provide trustee services.
After your death, the trustee would distribute assets to the beneficiaries outside of probate, and this is just one of the benefits.
Unfortunately, a significant percentage of elders become unable to make sound decisions at some point in time. If you have a living trust, your successor trustee or someone else that you name can be empowered to act as a disability trustee in the event of your incapacity.
You can include a spendthrift provision to protect assets from the beneficiary’s creditors. Plus, you can dictate the terms of the distributions. If you want the beneficiary to receive limited distributions on a monthly basis for an extended period of time, you can set those terms.
All or most of the assets that comprise the estate would be listed on a schedule, so the asset identification and inventory process would be streamlined. To account for assets that were never conveyed into the trust, you could include a pour over will.
This type of will would facilitate the transfer of the assets into the trust after your passing.
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A living trust can be the right choice for many people, but there are many tools in the estate planning toolkit. We can gain an understanding of your situation and your objectives and explain your options so you can make fully informed decisions.
If you are ready to get started, you can schedule a consultation at our Troy, MI estate planning office if you call us at 248-251-1001. You can alternately send us a message to request a consultation appointment.