Many times, clients will come to me when their parents pass away and are surprised that we must go through the probate process even though they had done their estate plan, established a trust, and even funded the trust with assets.
This came up very recently with a client whose mother had passed away in February. There were no probate assets because she had a trust in place with a home and a brokerage account. She had two bank accounts, one with her daughter’s name on it, and the other held jointly with her husband.
However, her husband passed just a few months after she did. The husband had never added a name to the account or set up a Transfer on Death designation. Her husband had a trust as well with his investment account, but we still must go through probate for his bank account. Why?
Because when someone dies and they own an asset just in their name alone (no co-owner, no beneficiary, etc.) it becomes a probate asset. When you go to the bank and tell them that Dad passed away, they will freeze the account and you cannot access the money until you produce a piece of paper from the Court saying you have the authority to access the account. This is the probate process.
What can be done about this? My first recommendation is to add a transfer on death designation or TOD to all bank accounts. This can be done at your bank by filling out a form that they keep on file. You will have to provide the bank with your beneficiary’s name, address, phone, and possibly social security number. This is essentially adding a beneficiary to your checking and savings accounts. The TOD designee does not have access to your account while you are alive, but they will be able to access it after you pass without having to go to Court.
Another option is adding another name to your account. The downside to this is that they are technically a co-owner, so you must trust them completely. Furthermore, if you add just one name, but you want to leave your assets to 4 people, the named co-owner will be under no obligation to share the account with the other 4 people.
Another question on the same topic is why don’t the accounts just go into the trust? Unfortunately, legal documents are not magical. Assets only go into trust if you take action to place them there. You can retitle an asset in the name of your trust, you can update a beneficiary designation to make your trust the beneficiary, or they can go through the probate process, and the estate will move the account to trust after the Court approves it. Simply having a trust established will not help assets avoid probate.
The hard thing that I find is that people sometimes think they are all set, but it isn’t always the case. It’s always best to look at all statements and beneficiary forms to see who is listed on the accounts. As the saying goes, don’t just assume because that makes… Do your homework and check all your accounts! And if you are having a hard time figuring out if you are set up to avoid probate, contact your estate planning attorney to find out!
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