I’ve written a lot about probate and avoiding probate. For many families a trust is the best way to do this. However, for simple estates, and even for trusts, non-probate transfers are vital. So, this month I’d like to focus on these measures. Non-probate transfers simply refer to beneficiary designations on property which therefore do not go through probate. Many people have these and probably aren’t even aware of it. Do you have a transfer on death (TOD) on your car? Then you are using a non-probate transfer.
While TODs are one of the most common types of non-probate transfers, there many other types as well. The bank version of the TOD is the POD or pay on death. (As a side note, TODs and PODs are sometimes used interchangeably, which is used practically does not matter). There are also beneficiary designations which occur on life insurance policies, retirement plans, security accounts, bonds, and many, many more. Your home can also have a beneficiary. This is done through a beneficiary deed. Almost any asset you have can have a beneficiary.
Now, many trusts use these transfers to transfer the asset upon death to the trust. But you don’t have a trust so, why do you care? Because they are a major component for anyone trying to avoid probate, trust or no trust. Thus, if you don’t want your loved ones to have to deal with court, you really want to evaluate the use of these transfers.
Another important consideration of these transfers is that, by definition, your will provisions do not apply. Now, that sometimes causes a problem with inconsistencies. If you updated your will, but haven’t updated your non-probate transfers and want the provisions of your will to control, you have a problem. Therefore, it’s very important you update both places (the will and the transfers) so your wishes occur. In essence, this creates some extra work to make sure everything is correct. But if you aren’t changing beneficiaries often and want to avoid probate, listing a beneficiary or multiple beneficiaries can be a great way to do so.
As a note, if updating beneficiaries on all the different assets you own sounds like a hassle, you might consider a trust. Under a trust, you changes beneficiaries to the trust, then only need update the trust with future changes.
What this really means for you is that you need to stay on top of your beneficiaries and other non-probate transfers (in addition to the rest of your estate plan). Check them on a yearly basis. If you have a major life event, check everything. I keep a list of my client’s assets (and the beneficiary designations), but you should too! Look at it on a yearly or at least semi-regular basis to make sure it still reflects your wishes.