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Probate is a legal process that verifies the validity of a deceased person’s will. This includes addressing debts and distributing remaining assets. If you die without a will or a living trust, probate can substantially influence the transfer of your assets. Here’s what you need to know to avoid the probate process.
If you want to protect your assets for your heirs, a financial advisor can walk you through different estate planning options.
How Probate Works
Probate is a legal process in which a deceased person’s will is validated. Debts and taxes will be paid off and the remaining assets will then get distributed, following the will’s instructions.
The probate process can be time-consuming and costly. After the will gets validated, an executor will be appointed. This is an individual who is responsible for managing the deceased’s estate, including the payment of debts and the distribution of remaining assets among the beneficiaries.
Do Bank Accounts Go Through Probate?
Bank accounts, like other assets, are generally subject to probate. The specifics, however, can vary depending on various factors. These include the total value of the estate, your state’s laws and regulations, and the presence or absence of a valid will.
Jurisdiction plays a crucial role. For example, estates in California valued under $184,500 (as of April 2022) can avoid probate.
Notable Exceptions
While there are exceptions allowing bank accounts to bypass probate, it’s important to know these apply under specific conditions. One such condition is a jointly held account or those with designated beneficiaries. For instance, if a parent has a joint bank account with a child, that account would avoid probate and directly pass to the child upon the parent’s death. However, this is not an automatic exemption and could vary based on the circumstances around the account. Here are two common ways to avoid probate on your bank accounts:
Joint ownership. Joint ownership of bank accounts is one strategic way to bypass probate. However, this strategy also has potential drawbacks. For starters, this will limit your control over the account and could expose you to creditors.
Payable-on-death (POD) accounts. Designating a beneficiary through a POD account is another way to avoid probate. Upon the account holder’s death, the funds are automatically transferred to the beneficiary. While effective, this arrangement should keep beneficiary designations current to prevent unintended outcomes.
Transfer-on-death (TOD) accounts. A TOD account automatically transfers its assets to a named beneficiary when the holder dies For example, if you have a savings account with $100,000 in it and name your son as its beneficiary, that account would transfer to him upon your death.
Bottom Line
Probate can substantially influence the transfer of assets after you die. Two common ways to protect your bank accounts from this process is to have joint ownership with your beneficiaries or designate a beneficiary through a payable-on-death account. These strategies, however, also come with drawbacks. So make sure to consider both options carefully.
Tips for Estate Planning
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A financial advisor can help protect your bank accounts and other assets from probate. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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Your estate plan will also include end-of-life arrangements. Advance directives are legal documents that enable individuals to retain control over their health care decision, if they become incapacitated. Here’s a comprehensive guide on advance directives for healthcare.
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The post How to Avoid Probate on Your Bank Accounts appeared first on SmartReads by SmartAsset.
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