Avoiding Probate: A Quick Primer Part 2

This article is not a substitute for, nor does it constitute, legal advice. Only an attorney who knows the details of your particular situation can provide you with legal advice.

Avoiding Probate: A Quick Primer Part 2

In my last blog post, I gave you a brief overview of a few ways to avoid probate. Namely, living trusts and joint tenancy. This blog post continues where the last one left off by providing you with a few more ways you can avoid the probate of your assets. These include pay on death designations, life insurance, and California state exemptions.

Pay on Death Designation

Pay-on-death designations (or transfer-on-death designations) are an increasingly popular way to avoid probate, and understandably so. What a pay-on-death designation does is it allows you to choose certain property that will go to the person you designate upon your death. There are some marked advantages to using pay-on-death designations: they are easy to create, can be used to transfer many types of property, and avoid probate.

To create a pay-on-death designation, all you normally need to do is fill out a single form. Institutions such as banks or the U.S. Treasury Department can provide this form (as an example, here’s the Treasury’s Form 4000 for pay-on-death transfer of US Savings bonds: http://www.treasurydirect.gov/forms/sav4000.pdf). Once you fill it out, the designated beneficiary receives the property you named in the form- all without probate. Pretty great, right?

Many types of property can be placed in a pay-on-death account. Bank accounts are a popular way to transfer money. But why stop there? Many states allow you to transfer government securities, stocks, bonds, retirement accounts, and brokerage accounts. Some states, including California, allow you to transfer your vehicle with a pay-on-death designation. It’s often included right on your title for convenience’s sake. While pay-on-death accounts can certainly be useful for conveying lots of types of property, it’s good to check with your local attorney as state rules and bank policies vary widely.

Life Insurance

It seems to me that life insurance has gotten a bad rap, largely due to a combination of overzealous insurance agents selling people policies that don’t fit their needs and people not understanding the benefits that life insurance can provide. Let’s try to start with a fresh mindset. Given your situation, life insurance could be a great way for you to avoid probate, get an estate tax reduction, and give your loved ones a tidy sum at a time when they might need it most. I will leave all of the nitty-gritty details of policy types and terms to the insurance professionals. What you’ll find here is a brief overview of when life insurance could be a good fit for you.

If your estate will owe substantial debts and taxes after your death, if your beneficiaries will need immediate cash once you are gone to pay for funeral expenses and income taxes, or if you own a small business and want to make sure that business continues without interruption once you are gone, then you should consider getting life insurance. Why? The answer to these questions is all the same: because the proceeds from a life insurance policy can be transferred quickly without much legwork.

Choosing a life insurance policy is tricky. My best advice is that you should choose an agent and company you trust and you should do plenty of research. Compare policies and prices online. If you ever feel pressured into a particular plan, your agent is unwilling to explain the details to you, or something just plain doesn’t feel right- walk away. It’s your money and your life- make sure you are comfortable with any major changes in your estate plan before you make them.

California State Exemptions

As I am a California-licensed attorney, I figured I should include the California probate exemptions here. In brief, California allows you to file an affidavit for $100,000 of personal property of the estate and a special affidavit for real estate worth less than $20,000. You also can choose the “simplified probate” procedure, where the surviving spouse gets what he/she would be entitled under a community property petition. Every state has different exemptions for probate. Check with your local attorney to sort out the details.

Hopefully this blog post has been helpful. If there are any topics you would like me to address, just let me know and I will do my best to address them in a future blog post.

The entirety of this article is copyrighted by Grant A. Toeppen, Esq., © 2012.  Please send an email to Grant@ToeppenLaw.com if you would like to use this article in part or in its entirety.


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