Chapter 7 Other Ways to Avoid Probate

• Library: Estate Planning Basics (Nolo) (2024 Ed.)

CHAPTER 7 Other Ways to Avoid Probate

Pay-on-Death Bank Accounts

Transfer on Death Accounts for Securities

Transfer on Death Car Registration

Transfer on Death Deeds for Real Estate

Joint Tenancy

How Joint Tenancy Works

When to Consider Joint Tenancy—and When to Avoid It

Tenancy by the Entirety

Community Property With Right of Survivorship

Community Property Agreements

Simplified Probate Proceedings

Life Insurance

Gifts

Aside from a living trust, there are a number of other ways to avoid probate. You can mix and match these methods, using the ones that work best for you.

You might wonder why you should bother with anything but a living trust, when it seems to work so well. The answer is that in certain situations other methods are easier to use, while providing the same probate-avoidance benefits. For example, a simple pay-on-death bank account is usually a better way to handle your checking account than a living trust.

In this chapter, we'll look beyond the living trust to other probate-avoidance methods, except individual retirement plans, which are covered in Chapter 8.

Pay-on-Death Bank Accounts

Setting up a pay-on-death (P.O.D.) bank account is an easy way to transfer cash at your death, quickly and without probate. All you do is designate on a form provided by the bank one or more persons you want to receive all money remaining in the account when you die.

You can do this for any kind of bank account—including savings, checking, or certificate of deposit accounts. And banks don't charge more for keeping your money this way. When you die, the beneficiary claims the money simply by showing the bank the death certificate and personal identification.

EXAMPLE: Therese opens a savings account in her name and names Lynn Zelly as the P.O.D. beneficiary. When Therese dies, any money in the account will go directly to Lynn, without probate.

There are no risks in creating a P.O.D. bank account. During your life, the beneficiary has absolutely no right to the money in the account. You can withdraw some or all of the money, close the account, or change the beneficiary at any time.

Like other bank accounts, a P.O.D. account may be temporarily frozen at your death if you live in a state that has an estate tax (see Chapter 10). In that case, if your estate must pay an estate tax (most won't), the state will release the money to your beneficiaries when shown that your estate has sufficient funds to pay.

Before you open a P.O.D. account, ask your bank if there are any special state law requirements about notifying the beneficiary. In a few states, a P.O.D. provision isn't effective unless you have notified the beneficiary that you've set up the account. Your bank should be able to fill you in on your state's rules. In any case, it's a good idea to tell the beneficiary you've set up the account. That way, the beneficiary will know to take control of the account after your death.

You can also register ownership of certain kinds of government financial obligations, such as bonds, Treasury bills, and Treasury notes, in a P.O.D. form.

Transfer on Death Accounts for Securities

In most states, you can add a transfer on death designation to individual securities (stocks and bonds) or securities accounts under the Uniform Transfer on Death Security Registration Act. Security accounts are broker-held accounts for your stocks, bonds, mutual funds, or similar investments.

The beneficiary or beneficiaries you designate will receive these securities promptly after your death. No probate is necessary.

Your broker should have a form that allows you to use transfer on death registration for a securities account. For individual stock or bond certificates, contact the company's transfer agent.

CAUTION

Your broker isn't required to cooperate. Although most stockbrokers and corporate transfer agents voluntarily offer transfer on death registrations, the law doesn't require them to do so; so you may need to ask them for the necessary forms.

Transfer on Death Car Registration

Some states allow vehicles to be registered in a transfer on death form: Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Illinois, Indiana, Kansas, Maryland, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Jersey, Ohio, Oklahoma, Texas, Vermont, and Virginia. If you live in one of these states and want to use transfer on death registration for your vehicles, contact your state's motor vehicle agency for the appropriate form.

Avoiding Probate for Boats

In some states, such as California, transfer on death registration is available for small boats, called "undocumented vessels," which include the myriad of small pleasure boats that aren't required to have a valid marine document from the U.S. Bureau of Customs. In California, only one owner and one beneficiary may be listed (Cal. Veh. Code § 9852.7).

Transfer on Death Deeds for Real Estate

In some states, you can prepare and record a deed now that takes effect to transfer that real estate only when you die. The states that allow transfer on death (TOD) deeds (sometimes called "beneficiary deeds") are Alaska, Arizona, Arkansas, California, Colorado, District of Columbia...