What happens when non-probate assets do not have a named beneficiary? They might wind up back in probate.
For example, life insurance and retirement accounts generally transfer to the named beneficiary. If no beneficiary is named, however, a court may be tasked with determining which of the decedent’s heirs should receive the proceeds.
Individuals might think they can avoid this outcome by simply titling assets with joint ownership, such as real estate and bank accounts. The co-owner might be a spouse or even a child. However, parents should think carefully before granting a child full and immediate control over a particular asset as a named co-owner. Notably, co-ownership also means that any creditors of the named co-owner could also go after the asset as part of their debt collection efforts.
A better approach to co-ownership might be to designate assets via a transfer-on-death deed, similar to a bank account with a payable on death designation. When the owner dies, the asset should transfer to the designated beneficiary without having to go through probate.
A trust might also be a smart option for individuals that want to have some control over how beneficiaries spend their inherited assets. The trust documentation can impose limits on use, and an independent trustee means that the beneficiary won’t have control over the trust principal, thus insulating it from creditors.
In short, estate planning is an important part of current financial planning. Individuals should consult with a law firm that focuses on estate plans, like ours, to ensure their assets are protected both during their lifetime and as part of their future estate. Check out our firm’s website to learn more.
Source: Consumer Reports, “6 costly estate-planning minefields, and how to avoid them,” April 14, 2015