Answer: A combination of purposeful titling and beneficiary designations, along with a revocable trust.
From time to time, you may have heard stories about assets being “tied up” for months (often years) after the owner’s death. The reality is that this is less likely to occur when your asset information is organized and if the executor or administrator is motivated to finish the process. Still, the named executor or the deceased owner’s spouse, children, and other beneficiaries will have to wait several weeks or even a month to get a probate appointment. During that time, they may not have access to any of the funds, creating a hardship if they do not have their own assets. This is because an estate plan that relies on either a will or state law to dispose of assets is subject to a process called “probate.” During the probate period, only the executor or administrator has the right to control estate assets, and all actions of the executor or administrator must be reviewed by the appropriate government authority.
If immediate availability of assets is a priority for your dependents or loved ones, creating a revocable trust may be the most efficient way to arrange your affairs. Revocable trusts act as your silent alter-ego, holding your assets for estate planning purposes but not restricting your control over them. Unlike property passing by a statute or will, when property is owned by your revocable trust, it is not subject to probate at your death. This means your successor trustee has immediate access to the assets upon proof of your death and, depending on the dispositive terms of the trust, the authority to distribute them to your loved ones quickly after reserving an appropriate amount for the payment of debts and expenses.
Also note that assets that pass by beneficiary designation (for example, life insurance and retirement accounts) and those that pass by title (jointly-owned accounts and real estate) are excluded from the probate process. This is one reason life insurance can be such an important part of an estate plan – it gives your loved ones immediate access to cash, which minimizes the risk of bills falling behind or beneficiaries scrambling to pay funeral or memorial service expenses.
Some elderly people, as a matter of convenience, add a child to a bank account as a joint owner to pay bills. Though well-intended, this can cause problems when that child inherits the account at the funding owner’s death and then does not make a gift to his or her siblings (or, in some cases, has to file a gift tax return to do so). Also, if that child has or develops creditor issues, monies intended for the elderly parent’s support can be seized. A better arrangement is to title the account in the name of the parent’s revocable trust and name the child as a co-trustee. This allows the child to pay bills for the parent during his or her lifetime, but still makes the funds quickly available to all the beneficiaries the parent intended at his or her death.
If your intended beneficiaries will have immediate cash needs, or if you need assistance managing assets in your later years, it is critical to review your estate plan (or remedy your lack thereof) to ensure that those needs can be met. For help, contact Schooley Law Firm. Together, we can evaluate your circumstances and determine what kind of plan will provide the support you and your loved ones require.
And if you liked this article, check out our previous post, Three Lists You Need To Know For Asset Management.