Assets may pass through the use of a revocable living trust, joint tenancy with right of survivorship, payable on death or transfer on death accounts, and beneficiary designations on life insurance and retirement accounts. In addition, having property valued at or less than the limit allowed for a simplified procedure Washington allows when estates are small and do not consist of real estate (currently $100,000). This process is called the Small Estates Affidavit procedure. Appropriate use of tax-free gifting during your life also allows part of your estate to avoid probate.
Avoiding probate is not the same as avoiding taxation. Avoiding probate may allow your beneficiaries to receive the assets you want them to have much quicker and less expensively, but your estate may still have to pay estate taxes on those assets.
Probate property is all property that is not non-probate property. Probate property is not subject to a prior legal agreement for its passage at one’s death. Probate property includes: property held in the deceased’s name only; property held by a married couple, and not subject to a community property agreement or held as joint tenants; any property held with others as tenants in common; and any property payable to the deceased’s estate at his or her death. Probate property passes under the supervision of the court through the probate process and is generally ordered to be passed subject to the terms of a Will.
A Revocable Living Trust is a trust established while you are living. It is revocable, so you are able to make changes whenever you want, as well as reclaim the property transferred into it. It describes how your property should be managed while you are alive, and how it should be distributed upon your death.
Normally, if a person without a trust dies, there must be a probate process to determine how to distribute all of the property held solely in the decedent's name. A Will can help the probate court to determine where the property should go, but does not avoid the probate process. In fact, one primary purpose of probate is to validate a Will if one exists. Probate is a public procedure and opens up an estate's distribution to the public eye.
When you have correctly set up and used a Revocable Living Trust, upon your death there will be no probate process. This is because the owner of the property (the Trust) did not die; just the person in the role of the grantor and trustee (you). The new successor trustee will be able to take over without the long probate process.
By itself, a revocable living trust does not avoid income, estate or gift taxes. Standard provisions for saving estate and gift taxes can be included in a revocable living trust or a Will. You should not set up a revocable living trust just to save taxes.
The exact cost of a revocable living trust depends on how valuable and complicated your assets are, whether standard documents can be used, how many assets must be transferred to the trustee and whether tax planning is needed.
If you do not plan to serve as trustee, you should consider any fees you might have to pay the trustee and whether those fees would replace fees you are already paying to manage your assets.
A standard revocable living trust package should include the trust document, the transfer of assets to the trust, a "pour-over" Will to add any other assets to the trust, and a similar durable power of attorney; it also might include descriptive materials and related legal documents, such as a directive to physicians or "living Will."
To establish ownership, the surviving individual typically only has to present a death certificate to the financial institution holding the property or record the death certificate in the County where the real property is located.
The biggest pro to a Joint Tenancy is the fact that ownership of the property is transferred outside of probate. This makes this type of transfer simple and economical. During the life of the tenancy, the creditors of all of the tenants can reach the tenants' share of the property.
With a Payable On Death bank account, the beneficiary has no rights to the funds until you pass on. Until that time, you are free to use the money kept in the bank account, to change the beneficiary, or to close the account. You control everything until you pass on, which leaves many people with peace of mind.
The only real drawback to a Payable On Death bank account is that you cannot name alternate beneficiaries on one account. This can easily be overcome by setting up multiple Payable On Death bank accounts for different beneficiaries, such as three or four children.
The beneficiary should have no problems when claiming the funds on the Payable On Death bank account. As long as the beneficiary can prove that you have passed on, the money stored in the bank account will be given to that person or transferred to his or her bank account.
Almost every state has adopted a law (the Uniform Transfer-on-Death 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 company itself, you make a request to take ownership in what's called "beneficiary form." When the papers that show your ownership are issued, they will also show the name of your beneficiary.
After you have registered ownership this way, the beneficiary has no rights to the stock as long as you are alive. But after your death, the beneficiary can claim the securities without probate, simply by providing proof of death and some identification to the broker or transfer agent (a transfer agent is a business that is authorized by a corporation to transfer ownership of its stock from one person to another).
You can name as many beneficiaries as you want, subject to procedures set in the policy. The beneficiary(s) to whom the proceeds go first is called the primary beneficiary(s). Secondary beneficiaries are entitled to the proceeds only if they survive both you and the primary beneficiary(s). A third level of beneficiary ("final" beneficiaries) can be named as well. Final beneficiaries receive proceeds only if they outlive all other beneficiaries.
You should name at least secondary beneficiaries. You may outlive the primary beneficiary(s), you may die simultaneously, or the primary beneficiary(s) may be unable to collect the proceeds. In these cases, if you have not named secondary beneficiaries, the proceeds pass to your estate and therefore go through probate. Proceeds paid to your estate are subject to all the expenses, creditor claims, and delays associated with settling an estate, whereas named beneficiaries can receive proceeds almost immediately after your death.
When naming beneficiaries, remember to consider:
Employer-Sponsored Retirement Plans
Individual Retirement Accounts
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