TuckerAllen recently hosted a virtual town hall covering how your money is distributed after you die.
The town hall was hosted by moderator Scott Trout and featured a panel of TuckerAllen estate planning attorneys who detailed for viewers what they can do to ensure their money is distributed how they see fit upon passing.
Transfer on Death/Payable on Death and Beneficiary Designations
Considered the first line of defense, it is vital to make sure your assets have a beneficiary designation. Transfer on Death (TOD) or Payable on Death (POD) arrangements are just different ways to describe beneficiary designations.
Transfer on Death or Payable on Death arrangements are account designations for naming beneficiaries and avoiding probate in the event of your death.
Most institutions will have their own beneficiary designation forms, so you can either name induvial(s) or your trust as the beneficiary.
Will my estate go to probate?
Anything that does not have a TOD or POD might end up going to probate.
Probate is a court supervised process wherein the executor or appointed personal representative under the last will and testament provides the validity of the will and distributes the estate under the terms of the will. It is an important legal process in that the property is stuck titled in the name of a deceased person and probate moves that title to living person(s).
Probate can be a very time-consuming and expensive process because it requires the personal representative to first file an application with the probate court to act as a PR. They then must ensure that notices are sent or published in the paper to alert beneficiaries as well as creditors. The PR also provides the court an inventory and appraisal of property in probate estate.
After court closes probate, the PR is responsible to distribute property. At the closing of the estate, the PR will file an accounting with the court. The entire process can cost between 5 and 20 percent of the total estate.
However, probate might not be necessary depending on trust funding.
Trust funding is the process by which assets are put into the “bucket” that is the trust document. This transfers ownership of the assets to the trust. For assets that have beneficiary designations, the trust can be made the primary beneficiary. If there is a trust that is fully funded and nothing goes to probate, then there is no probate and the trust is operating as intended.
How does trust administration work?
If everything is titled with the trust in some way, your trustee will then have control and be able to distribute anything in the trust estate, according to the rules of your trust. This opens the trust account to consolidate everything.
If the trust was not the beneficiary, then your beneficiaries (if named) will decide what to do with the asset they received.
If everything was not titled, or if something was left out of the trust or did not have an individual as beneficiary, then it is a probate estate. Most people do not want to put their loved ones through this.