The goal of most people who take on estate planning is to pass on their assists with as little worry, delay, or cost as possible. Many look for ways to ensure that their assets are non-probate assets or non-probate property. These are kinds of property that pass directly to those you have named as your beneficiaries. Laws dictate that these assets must transfer directly to legal heirs. They are easier to pass on, and they can appear in a number of forms.
There are six types of non-probate assets. Knowing which kinds of property are considered non-probate can make estate planning less complicated.
Payable-on-Death (POD), Transfer-on-Death (TOD), or In-Trust-For (ITF)
These are kinds of property which are in the grantor (the original owner—the one giving the property to the beneficiary) is the sole owner. In some designations, real estate is included in this category. Other assets of this type include a Health Savings Account (HSA), certificates of deposit, the contents of savings accounts, and security deposits.
These kinds of assets are not shared with other people. Designating them depends on which state the grantor lives in and where the will may have been executed. They can include TOD or beneficiary deeds, which, in some areas, can be used to pass on real estate. Usually, these do not go into effect until after the grantor has died. Sometimes this is the best option for older people who are certain about how and to whom they would like to hand on their property.
The only potential tangle in leaving payable or transfer on death property is if the named beneficiaries die before the grantor does. At that point, the probate process usually begins. However, this is avoidable if estate documents are routinely reviewed and updated.
Joint Tenancy With Rights of Survivorship (JTWROS), Joint Ownership, or Tenancy by the Entirety (TBE)
It might seem that owning property or other assets with another person could complicate execution of a will, but not if these are carefully designated. Property which is filed as Joint Tenants With Rights of Survivorship (JTWROS) typically exists as a brokerage account which is owned by, at minimum, two people.
Sometimes, real estate, usually family homes, can be part of a JTWROS. In this event, the real estate can be owned by two spouses; parents and children; or among siblings. It is typically not used in ownership of large businesses. Those who are part of the JTWROS have full and equal access to and rights to the account or property.
It is important that in the creation of JTWROS, the preparer is a professional and provides precise and clear language. Usually, the actual words Joint Tenants With Rights of Survivorship must be used.
Otherwise, the property might be considered owned by people who are Tenancy by the Entirety (TBE). In the case of TBE, all of the parties involved own the property equally, but they may be listed in different ways. It can affect not only real estate, but also investment accounts, brokerages, bank accounts, and health savings accounts. This affects their protections, rights, and tax status.
If you’re interested in listing property as tenants by the entirety, first ask your attorney if it is available in your state; recognition of it can vary. Also, be aware that even in states where it’s permitted, tenants by the entirety may only exist between legal married spouses.
The difference between tenants by the entirety and JTWROS is that in a TBE, spouses cannot transfer the property or terminate the agreement without stated consent. This protects spouses from turning on the other and selling his or her property out from under a partner.
Revocable Living Trusts
Another good way to avoid probate is to leave assets in a revocable living trust. This means that whatever a grantor has placed into a trust— real estate, bank account contents, personal items, and other assets—will pass to a designated beneficiary.
A revocable living trust is also referred to as a living trust. When a person creates a living trust, the grantor’s assets belong not to him or her, but the trust. However, the person who created the trust remains in control of it and the assets it holds. The beneficiary does not gain ownership of the property until after the grantor passes away.
Responsible grantors also designate a successor trustee who will manage the trust in the event the original owner becomes incapacitated. This can involve using the contents of the trust to pay property taxes, outstanding debts, and final expenses. Regular evaluation of the beneficiaries and successor trustees can ensure that the grantor is passing the contents of the trust to those who he or she wishes to.
What about a life estate? That’s another option for those who wish to avoid probate. In a life estate, the original owner continues to pay taxes on a property or meet the premiums of an insurance policy, just as he or she might as the sole owner. As in a revocable living trust, the grantor lives in a home or invests money as he or she usually might.
However, a life estate is different from a revocable living trust or JTWROS in that it not revocable. That means it cannot be changed, and any property within cannot be sold. Those who place their assets in life estate, then, must be quite sure of their beneficiaries.
Life Insurance Policies
Most people are aware of a life insurance policy as a means of covering debts after death and providing dependents or spouses with a source of income after death. Although they are not usually thought of as such, a life insurance policy is also considered property or an asset.
Life insurance payouts depend up on much the holder has paid into it via premiums. They may be modified in a number of ways, and go into effect after the death of the grantor. Sometimes they cover sudden disabilities or other waivers.