The term “probate process” refers to the legal process involved in administering a deceased person’s estate. A person’s “estate” is considered to be the total of all their belongings, real property, assets, and funds. The probate process includes various steps and tasks, including:
- Determining whether a will is valid;
- Collecting all assets;
- Paying off outstanding debts and taxes; and
- Distributing property to the deceased person’s heirs or beneficiaries.
Depending on the state, the probate process can be very complicated and expensive. It may involve attorneys’ fees, court costs, appraisers’ fees, and the executor’s fees. These can add up and may reduce the overall value of the person’s estate.
Are There Any Alternatives to Probate?
Ideally, the best way to avoid the costs and fees associated with probate is to have a valid will in place when you pass away. This will provide the court with specific instructions on how your property is to be managed and distributed. This is not so much an “alternative” to probate, as it is the standard or ideal way that a person’s estate should be managed upon their death.
There are some other financial instruments that could be considered alternatives to probate. These are financial tools that allow property to be passed to beneficiaries upon the person’s death without the property having to go through the probate process. One such financial instrument is a “payable on death” account.
What is a Payable on Death Account?
One of the ways to avoid the costs and inconveniences associated with probate is to set up a “payable on death” bank account, or “POD account”. These are also called by other names such as “Totten trusts“, and can be opened at most banks, brokerage houses, credit unions, and other financial institutions.
Banks offering POD accounts will typically provide a “beneficiary designation” form. This form allows the account owner to name anyone who will get the money in the event that the account owner dies. The money contained in the bank account will pass automatically to the beneficiary or beneficiaries upon the death of the owner. Thus, there is no need for the probate court to investigate to whom this money should go.
Generally only spouses, children, grandchildren, parents, and siblings can be named as beneficiaries. This may depend on various factors, however, such as state laws as well as the policies of the individual bank or financial institution. You may need to consult with a lawyer if you have any questions regarding the way POD accounts are treated in your area.
What are Some Other Ways to Avoid Probate?
There are various other financial tools and instruments that you can use to avoid probate. These may include:
- Joint Bank Accounts: Joint bank accounts sometimes allow the account funds to transfer immediately to the other account owners in the event that one of the joint owners dies. The account funds simply pass to the other owner or owners, without the need for the funds to pass through the probate court system; and
- Trusts: Some types of trusts, such as revocable living trusts, allow a person to transfer property to a named beneficiary. For instance, they might create a trust that transfers certain property to a beneficiary at a certain time, or when certain conditions are met.
There may be other types of instruments you can use to transfer property outside of the probate process. These each have their own uses and benefits, which may differ depending on your exact goals and intentions.
For instance, depending on your situation, a joint bank account might be what is needed to accomplish your estate goals. In other contexts, a POD account might be more suitable given the person’s estate. Again, the advice and guidance of an estate law attorney can be very helpful in this regard.
What are the Advantages of POD Accounts?
There are many advantages of a payable on death account over other probate-avoidance accounts such as jointly owned accounts and trusts. For instance, in a jointly bank account, a child’s creditors can sometimes get to the parent’s money. In comparison, a POD account remains the parent’s until death. Also, in a POD account, beneficiaries can be changed or removed, or the money can be spent, at any time.
Trusts are also useful for avoiding probate fees. However, they can often involve accountant’s fees and attorney costs. With POD accounts, these costs can be typically be avoided. However, POD accounts are still considered part of the estate for inheritance, and gift tax purposes.
Should I Seek Legal Help if I’m Considering a POD Account?
If you are considering creating a payable on death account as an alternative to the probate process, you should contact a wills, trusts, and estates lawyer. An experienced attorney near you can help ensure that you and your loved ones are protected.