Ways to Avoid Probate
By Eric Heckman
If you’re like most people, you’ve worked hard to accumulate assets, and expect to live your retirement years in comfort while leaving the balance of your estate to your heirs. If this is true, then legacy planning is vital for you.
When many first consider legacy planning, they immediately think of preparing a last will and testament. While wills have their advantages, they also have some drawbacks, such as probate. The probate process includes proving the authenticity of a person’s will, appointing an executor, identifying and inventorying a person’s property, paying debts and taxes, identifying heirs and distributing property.
There are alternatives to probate known as will substitutes. If you would rather be the judge of what happens to your estate, read on about substitutes and how they can avoid probate.
1. Assets held in a revocable living trust. The property you transfer into the trust passes directly to the trust beneficiaries after you die, without court involvement.
2. Balances of retirement accounts. When you open a retirement account, such as a traditional or Roth IRA, you are asked to name a beneficiary. Your beneficiary needs to provide identification and proof of your death to claim the funds.
3. Balances of tax-deferred annuities. The death benefit of an annuity passes the account value to a named beneficiary. Although the death benefit avoids probate, the value of the annuity is generally included in your estate for estate tax valuation purposes. Your named beneficiaries can choose to receive the funds as monthly income or a lump-sum payment and may be subject to ordinary income tax on the earnings portion of the proceeds.
4. Proceeds of an insurance policy where beneficiaries are named other than your estate. A policy owner contracts with the life insurance company to pay out a death benefit to a designated beneficiary.
5. Balances of payable-on-death bank accounts. Your financial institution will provide you with a form to name who you want to inherit the account(s). When you die, your beneficiary will need to provide identification and proof of your death.
6. Securities registered as transfer-on-death. Most states have adopted the Uniform Transfer-on-Death Security Registration Act that allows you to have someone inherit your stocks, bonds or brokerage accounts without probate.
7. Assets held jointly with your surviving spouse or with another person as joint tenants with a right of survivorship. Through right of survivorship, the surviving joint tenant immediately succeeds full ownership of the property upon the death of the other joint tenant.
Your loved ones will have enough to deal with emotionally and it’s wise to do what you can to make the inheritance process as simple and painless as possible.
Eric Heckman is president of Heckman Financial & Ins. Contact him at www.WealthCreator.com or 297-9800.
