Assigning assets to new owners can be a useful estate planning strategy, especially when circumstances make a speedy and private inheritance preferable. In essence, when asset ownership is effectively shifted ahead of death, the public process of probate can be avoided, thus saving time and safeguarding privacy.
Non-Probate Assets Explained
Thoughtful and proactive adjustments to how assets are owned can render assets “non-probate,” ensuring they by-pass public probate protocols, and generally enabling distribution to beneficiaries in a more timely and confidential manner:
“Probate” is the process of changing ownership of the decedent’s assets to the beneficiaries named in their Will, if any, or their beneficiaries as determined by the law…Probate property is any property the decedent owned in their individual name at the time of their death. All other property is classified as “non-probate” property. Non-probate property can include property held jointly, in trust, or with a beneficiary designation….No probate would be required if someone passes away with a house and bank accounts titled jointly with their spouse or held in a revocable trust. The property will automatically pass to the surviving owner or under the terms of the trust.
Tactics for shifting asset ownership include: “changing ownership of an asset altogether, adding a joint owner, or changing a beneficiary designation.” Many families find, for example, that establishing a revocable trust during estate planning can be a very practical way to shift assets: the assets designated for a trust become the property of the trust, and therefore are not required to pass through probate. Estate planning experts remind us, however, that “Transferring property to a trust must be done with careful attention to detail and only when a proper estate plan is in place,” and explain:
Titling assets in a revocable trust during your lifetime, also called “funding” your trust, will avoid probate upon your death. Avoiding probate allows the assets to be distributed more quickly to the beneficiaries. It also keeps the overall process more private, as probate requires the Will to become a part of the public record. Revocable Trusts are considered separate legal entities. The Trustee manages property titled to a revocable trust. However, the Trustee has no legal ownership right in the property. They only control the assets for the benefit of someone else (the beneficiaries of the trust). Trustees are also held to care and loyalty duties, which require that they manage the trust property efficiently and effectively.
Another viable strategy for ensuring property passes smoothly and directly to surviving owners is setting up accounts with multiple owners—-an approach referred to as joint ownership:
Joint ownership, also known as joint tenancy or joint property, allows two or more people to own an asset together, with the right of survivorship. This means that when one owner dies, the surviving owner(s) automatically inherit the deceased’s share of the property without the need for probate. While joint ownership can offer simplicity and ease in estate planning, it also comes with potential drawbacks, such as loss of control and unintended consequences….One of the most significant disadvantages of joint ownership is the potential loss of control over the asset. All joint owners have equal rights to the property, which means decisions about the property must be made collectively. This can lead to conflicts and complications, especially if the owners have differing opinions or interests. For example, if you own a rental property with a sibling as joint tenants, you both must agree on matters such as renting to tenants or selling the property.
During estate planning, it is also helpful to keep in mind that because life insurance policies and retirement accounts allow for the direct designation of beneficiaries, these kinds of assets are also considered non-probate. However, to be confident that the assets in these non-probate accounts will be inherited smoothly and as intended, it’s very important to accurately list beneficiaries. It’s also wise to periodically review and update beneficiary designations on life insurance and retirement accounts to reflect changes in families, such as births and deaths.
Good To Know
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