Avoiding probate does not have to be complicated or expensive. There are simple steps you can take to ensure that certain assets pass to the people you chose without going through probate. One of the easiest ways to avoid probate is to have the money in your bank accounts, retirement accounts and investment accounts automatically transfer to the beneficiary or beneficiaries of your choice after you pass away by filling out simple beneficiary designation forms with your bank and financial institution.
Pay-on-Death (POD) Bank Accounts
Pay-on-death (POD) bank accounts offer one of the easiest ways to keep your money – even large sums of money – out of probate. POD beneficiary designation can be set up for checking accounts, savings accounts, money market accounts and certificates of deposit (CDs). All you need to do is fill out a simple bank form which names the person (or persons) you want to inherit the money in the account at your passing. After you have passed, your named beneficiary just goes to the bank, shows proof of your death (the death certificate) shows his or her identification, and then collects whatever funds are in the account. The probate court is almost never involved.
As long as you are alive, the person(s) you named to inherit the money in a pay-on-death (POD) account has no rights to the money. You can spend the money, name a different beneficiary, or close the account.
If you and your spouse have a joint bank account, when the first spouse passes, the funds in the account will become the property of the surviving spouse, without probate. If you add a POD beneficiary designation, it will only take effect after the second spouse passes.
When you open a retirement plan account such as an IRA or 401(k), you will most likely fill out forms that ask you to designate a beneficiary for the account. After you pass, the funds that are left in your account will not go through probate; the beneficiary or beneficiaries you named can claim the money directly from the account custodian.
If you’re single, you are free to choose whomever you want as your beneficiary or beneficiaries. If you’re married, your spouse may have rights to some or all of the money. If you have a 401(k) account, your spouse is entitled to inherit the money unless he or she agrees, in writing, to your choice of someone else as beneficiary.
If you live in a community property state, like California, chances are your spouse owns half of what you have socked away in your retirement account. If any of the money you contributed to your retirement account was earned while you were married, that money remains “community property,” and your spouse owns half of it. You can only name an alternate beneficiary to your spouse if you spouse agrees, in writing, to your choice of someone else.
Transfer-on-Death (TOD) Securities Registration
Almost every state has adopted the law (the Uniform Transfer-on-Death (TOD) Securities Registration Act) that lets you name someone to inherit your stocks, bonds or brokerage accounts without probate. It works very much like a payable-on-death bank account. When you register your ownership, either with the stockbroker or the financial company itself, you make a request to take ownership in what’s called “beneficiary form.” The forms that show your ownership will also show the name of your beneficiary.
After you have registered ownership in TOD form, the beneficiary or beneficiaries have no rights to your stocks, bonds or the money in your brokerage account as long as you are alive. But after your passing, the beneficiary can claim the securities without probate, simply by providing proof of death and identification to the broker or transfer agent.
Pay-on-death (POD) bank accounts, Transfer-on-Death (TOD) securities registration and beneficiary designation of retirement accounts such as your IRA or 401(k) are easy and inexpensive ways to ensure that the money in your financial accounts pass to the beneficiary or beneficiaries of your choice when you pass away. For more information on avoiding probate with beneficiary designation and planning your estate, please contact the Law Offices of Eric A. Rudolph at (760) 673-7600 and check out our website at www.RudolphLegal.com.