A
look at two basic methods for shielding assets from probate.
Provided by Taylor McClish
How do you keep assets out of probate? If that estate planning question is on your mind, you
should know that there are two basic
ways to accomplish that objective.
One, you could create a revocable living trust. You can serve as its
trustee, and you can fund it by re-titling certain accounts and assets into the
name of the trust. A properly written and properly implemented revocable living
trust allows you to have complete control over those re-titled assets during
your lifetime. At your death, the trust becomes irrevocable and the assets
within it can pass to your heirs without being probated (but they will be
counted in your taxable estate). In most states, assets within a revocable
living trust transfer privately, i.e., the trust documents do not have to be
publicly filed.1
If that sounds like too much bother, an even simpler way exists. Transfer-on-death
(TOD) arrangements may be used to pass certain assets to designated
beneficiaries. A beneficiary form states who will directly inherit the asset at
your death. Under a TOD arrangement, you keep full control of the asset during
your lifetime and pay taxes on any income the asset generates as you own it
outright. TOD arrangements require minimal paperwork to establish.2
This is not an either-or decision; you can use both of these estate
planning moves in pursuit of the same goal. The question becomes: which assets
should be transferred via a TOD arrangement versus a trust?
Many investment & retirement savings
accounts are TOD to begin with. The
beauty of the TOD arrangement is that the beneficiary form establishes the
simplest imaginable path for the asset as it transfers from one owner to
another. The risk is that the instruction in the beneficiary form will
contradict something you have stated in your will.
One common situation: a parent states in a will that her kids will
receive equal percentages of her assets, but due to TOD language, the assets go
to the kids not by equal percentage, but by some other factor, with the result
that the heirs have slightly or even greatly unequal percentages of family
wealth. Will they elect to redistribute the assets they have inherited this way
(in fairness to one another)? Perhaps, and perhaps not.
How complex should your estate planning
be? A conversation with a trusted
legal or financial professional may help you answer that question and
illuminate whether simple TOD language or a trust is right to keep certain
assets away from probate.
Taylor McClish may be reached at (503) 239-3060 or Taylor.McClish@cunamutual.com
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necessarily represent the views of the presenting party, nor their affiliates. This
information has been derived from sources believed to be accurate. Please note
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Citations.
1 - investopedia.com/articles/pf/06/revocablelivingtrust.asp
[3/7/2019]
2 - investopedia.com/terms/t/transferondeath.asp [4/25/2019]
2 - investopedia.com/terms/t/transferondeath.asp [4/25/2019]