An Estate Planning Strategy to Avoid Probate

If you’re like many people we talk to, you may be actively looking for ways to avoid probate. Probate is the public, legal process of administering the estate of a decedent. It can be costly, time-consuming, and intrusive, so bypassing it is worth exploring.

There is an endless array of tools and techniques available to address probate avoidance. Ideally, a properly drafted estate plan is in order and kept up to date.

One of the strategies that may be included in an estate plan is transfer by contract. Meaning, assets (generally, brokerage accounts, stocks, bonds and other non-retirement investment accounts) are transferred to a beneficiary via a Transfer on Death (TOD) account registration.

A TOD registration is simply a form completed by the owner of an account to name beneficiaries on the account. Retirement accounts have named beneficiaries. TOD allows for a similar function on non-retirement accounts. The registration treatment varies by state, but is very comparable in the majority of states. This form can be filled out when the account is opened, or added later.

In practice, the mechanics are as follows:

  • The account owner completes and signs a Transfer on Death form for the account they desire.
  • At passing, the executor of the deceased’s estate or another individual notifies the firm who administers the account, and provides the deceased’s death certificate.
  • The account is then re-registered in the name of the beneficiary who was named on the Transfer on Death form.
  • Any step-up in cost basis that is allowable by the applicable law is accounted for by recording the value of the account at the date of death of the original owner.

The significant takeaway of this strategy is that, generally speaking, the beneficiary will have access to the assets much sooner (subject to state requirements) to take care of the immediate needs of the estate, i.e., funeral costs, mortgages, taxes, etc.

In contrast, if a person dies without registering Transfer on Death or without other estate planning, the person’s investment account may be frozen in probate. The court would have to determine whether there is a valid will and what that will says about the deceased’s intentions. If there is no will, the procedure becomes even more difficult because there is less information.

Cost, time, and emotions are just a few of the obstacles mentioned for those who do not have an estate plan. Some of these burdens to heirs can be avoided with a straightforward Transfer on Death registration.

Again, this simple strategy is not by any means a substitute for a properly drafted estate plan by an attorney. We have established relationships with several legal professionals that specialize in estate planning, who we can coordinate with to bring you peace of mind and closer to your financial and legacy goals.

If you would like to learn more about Estate Planning, please contact us.

Casey Pisano, CFP®
Wealth Advisor