Probate is the legal process of distributing a deceased person’s assets according to their will or state law. It can be a time-consuming and expensive process, often taking several months or even years to complete. However, there are strategies you can employ to avoid probate on your bank accounts, saving your beneficiaries significant time, effort, and expenses.
Why Avoid Probate on Bank Accounts?
Bypassing probate on your bank accounts offers several advantages:
- Swift and Seamless Transfer of Funds: Your beneficiaries can access the funds immediately, without waiting for the probate process to conclude. This can be especially helpful for covering immediate expenses, such as funeral costs or ongoing bills.
- Reduced Costs: Probate involves attorney fees, court fees, and other administrative expenses that can quickly add up. Avoiding probate can potentially save your estate and beneficiaries significant amounts of money.
- Privacy: Probate is a public process, meaning anyone can access the court records and find out details about your estate, including the value of your assets and the identities of your beneficiaries. Avoiding probate helps maintain your financial privacy and protect your family’s confidentiality.
Strategies to Bypass Probate on Bank Accounts
Here are some effective strategies you can implement to avoid probate on your bank accounts:
1. Joint Ownership with Rights of Survivorship (JTWROS)
This is a popular strategy where two or more people own a bank account as joint tenants with rights of survivorship. Upon the death of one owner, the surviving owner(s) automatically inherit the deceased owner’s share of the account. This transfer happens automatically, bypassing probate.
Benefits:
- Immediate access to funds for the surviving owner(s).
- Overrides the terms of the deceased’s will regarding the bank account.
- Ease and simplicity of setup.
Drawbacks:
- Full access to funds for all joint owners during the original owner’s lifetime.
- Potential vulnerability to creditors of the joint owner(s).
- Gift tax implications if a joint owner withdraws more than intended.
- Impact on Medicaid eligibility.
- Potential for relationship strain due to financial disagreements.
2. Payable-on-Death (POD) Accounts
This strategy allows you to designate one or more beneficiaries who will automatically inherit the funds in the account upon your passing. Setting up a POD account is typically straightforward and involves completing a beneficiary designation form provided by your bank.
Benefits:
- Direct and immediate access to funds for beneficiaries.
- Overrides the terms of the deceased’s will regarding the bank account.
- Ease and simplicity of setup.
Drawbacks:
- Beneficiaries have no access to funds during the original owner’s lifetime.
- Potential for disputes among beneficiaries.
3. Revocable Living Trust
A revocable living trust is a legal entity that holds ownership of your assets, including bank accounts, while you maintain control over them during your lifetime. Upon your death, the assets in the trust, including your bank accounts, will not have to go through probate. Instead, the successor trustee will distribute the funds to your beneficiaries according to your instructions.
Benefits:
- Avoids probate.
- Provides instructions for managing your assets if you become incapacitated.
- Offers flexibility in managing your assets.
Drawbacks:
- Costs and formalities associated with setting up and maintaining a trust.
- Does not protect against creditors.
- Does not offer the same tax advantages as some irrevocable trusts.
4. Small Estate Affidavits
This strategy allows heirs or beneficiaries to collect a deceased person’s assets without probate if the estate meets certain conditions, such as having a total value below a specific threshold.
Benefits:
- Faster access to funds for beneficiaries.
- Simple process.
- Cost-effective.
Drawbacks:
- Limited to smaller estates.
- Potential liability for heirs or beneficiaries.
- Not suitable for estates with real property or complex assets.
5. Gifts
Gifting the money to your intended beneficiaries while you’re alive is another option. However, be aware of potential tax implications and the possibility that gifting may affect your financial security.
Choosing the Right Strategy
The best strategy for you will depend on your individual circumstances, such as the complexity of your financial situation, the size of your estate, the number of beneficiaries, and your desire for control and privacy. Consulting with a financial advisor and an estate planning attorney can help you evaluate your options and select the strategy that best meets your needs.
Bypassing probate on your bank accounts can save your beneficiaries significant time, effort, and expenses. By understanding the available strategies and their implications, you can make informed decisions and create an estate plan that aligns with your goals and wishes.
Do Bank Accounts Have Beneficiaries?
Some bank accounts will have beneficiaries, while others won’t. It is crucial to keep in mind that although the majority of checking and savings accounts have the option to be pay-on-death or transfer-on-death bank accounts, which allow the beneficiary listed on the account to withdraw funds from the account as soon as they pass away, it is usually not mandatory for account owners to designate a beneficiary, nor are account holders necessarily aware of their right to do so.
In California, the successful conversion of a regular checking or savings account into a transfer-on-death or payable-on-death bank account requires the account holder to have completed and signed a form known as a “Totten trust” with their bank. If they hadn’t taken this action, it might have been harder to gain access to the deceased person’s bank account.
What Happens When a Trust Is Named as the Beneficiary of a Bank Account?
Trust creators, also known as settlors, grantors, or trustors, frequently designate a trust as the beneficiary of a bank account in order to avoid probate and distribute the asset in line with the terms of their trust.
The main benefit of designating a trust as a beneficiary on a bank account is that it keeps assets consolidated, saving the surviving family members of the deceased from having to locate them.
Additionally, naming a trust as a beneficiary can help the decedent’s loved ones save a lot of money and time because it avoids probate.
It will be the trustee’s responsibility to go and retrieve the contents of the bank account if the deceased named their trust as the beneficiary.
For the asset to be released to them, they will typically need to provide the bank with a certified copy of the decedent’s death certificate, their own government-issued identification, and the trust instrument. However, the specific documentation required may differ depending on the bank, so it is best to contact ahead of time to find out what you need to bring.
What Happens to Bank Accounts After Death? – Knowledge from a Probate Attorney
FAQ
Can I withdraw money from a deceased person’s bank account?
Can you access a deceased person’s bank account?
What type of account bypasses probate upon the death of the owner?
Can an executor empty a bank account?
Do bank accounts go through probate?
It depends on how the accounts were owned. Solely owned bank accounts usually go through probate before the inheritors can access the funds. However, accounts with a payable-on-death (POD) beneficiary don’t go through probate. The beneficiary can simply claim the money by providing ID and a death certificate.
Can a bank transfer money without probate?
If there is a beneficiary, that person would take a death certificate to the bank and fill out some paperwork. In either of those cases, the transfer could happen without probate. If these do not apply, then the bank will require a probate court order to access the account.
Can a bank account avoid probate?
Jurisdiction plays a crucial role. For example, estates in California valued under $184,500 (as of April 2022) can avoid probate. While there are exceptions allowing bank accounts to bypass probate, it’s important to know these apply under specific conditions.
Can a joint bank account avoid probate?
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.