Most people think they must have a large estate before they start worrying about estate taxes and probate costs. While this could be true with regards to federal and state transfer or inheritance taxes, not so true with regards to probate costs. Avoiding probate doesn’t mean avoiding taxes.
If you don’t care about probate cost or privacy after your death, then this article will not interest you. However, if you are concerned, then read on. I do not plan on giving you legal advice but attempt to get you thinking about leaving the maximum dollars to your heirs or charitable organization(s). You should consult your legal adviser on anything I say here.
Keep in mind, if you are married, your spouse and children have certain rights and using probate avoidance techniques to transfer property doesn’t change that. If you have been previously married with children from that marriage, this is a good time to review all beneficiary documents you previously signed such as group insurance, retirement accounts such as IRAs, 401(k), other company plans, stocks/bonds, CDs, cars, and yes, even real estate holdings.
Keep in mind that the biggest benefits from your probate avoidance planning techniques will come from assets like real estate, bank accounts and investments.
One of the best ways and easiest ways to keep money out of probate is to set up Payable-On-Death Account (POD). Some states call this a Totten trust, named after a court case in 1904. They are easy to set up and there is no limit on how much money you can leave this way.
You can add a payable-on-death designation to any kind of new or existing accounts like checking, savings, or CDs. There is no charge to set up this account. Be careful when setting up a Payable-On-Death account (POD) for joint accounts as most of these have a “right of survivorship,” meaning the money automatically goes to the survivor and by-passes probate. If it is a “tenancy in common” account, you can leave your share to anyone you choose. This happens in many community property states. North Carolina is not a community property sate.
You can name a minor, in most cases, a child younger than 18 as a beneficiary under a POD account. You may want to designate an adult to manage the money until a certain age by using the Uniform Transfer to Minor Act (UTMA). Several years ago, I set up a UTMA for my younger son. However, when he turned 18, the money went to him.
There are certain things to consider when setting up a POD account. For instance, what if the beneficiary dies before you do? If that were to happen, you should change the named beneficiary as soon as possible or the funds could go through probate after your death.
After your death, it is very easy for a POD beneficiary to claim the money. The bank will need a certified copy of the death certificate and proof of the beneficiary identity. Just to be sure, when setting up a POD account, to ask the bank what the POD beneficiary will need to do to claim the money after your death.
If you have any questions or if you would like to discuss your situation with us, or if you are thinking about selling your home, land or farm, give up a call at 252-257-4822. Be on the lookout for our next installment on avoiding probate.