You may have heard that the best way to avoid probate is to create a trust. While a properly created and funded trust can be an effective probate-planning tool, it is not the only way property can pass outside of probate.
In fact, you may already own some assets that will transfer directly to another person when you die.
Whether you need a trust depends less on the simple value of your estate and more on what you own, how those assets are titled, and what you want to accomplish.
Beneficiary Designations Can Transfer Assets Directly
Many financial assets allow you to name a beneficiary who will receive the asset after your death.
Life insurance and retirement accounts are common examples. Certain bank and investment accounts may also allow for payable-on-death or transfer-on-death beneficiary designations.
When an effective beneficiary designation applies, the asset generally passes to the named beneficiary rather than being distributed through your will.
Joint Ownership May Affect What Happens at Death
How you own property with another person can also determine whether it passes through probate.
Certain forms of joint ownership include survivorship rights. When one owner dies, the surviving owner may receive the deceased person’s interest by operation of law rather than through the probate estate.
But joint ownership should not be used casually as an estate-planning shortcut. Adding another person as an owner during your lifetime can have consequences beyond probate, so it is important to understand what type of ownership you are creating.
What About My House?
Minnesota also allows property owners to use a transfer on death deed, commonly called a TODD.
A properly prepared and recorded TODD allows an owner to designate a beneficiary who will receive the real estate after the owner’s death. The owner continues to own and control the property during life, and the transfer occurs at death.
Probate Avoidance Is Only One Part of the Decision
Avoiding probate can be a worthwhile estate-planning goal, but it should not become the only goal.
A trust may provide benefits beyond probate avoidance, including greater control over how and when beneficiaries receive assets. On the other hand, a family with relatively straightforward assets may be able to accomplish its goals through a combination of a will, beneficiary designations, a transfer on death deed, and other planning tools.
At Hill Crabb, LLC, we help Minnesota families look at the entire picture before deciding which estate-planning tools make sense. Contact us today to schedule a consultation and discuss the best way to transfer your property to the people you care about.