Before we look at payable on death or transfer on death accounts, we should explain what probate is and why people try to steer clear of it.
Estate Administration
If you utilize a will as your asset transfer vehicle, the executor that you name in the document would act as the administrator after your passing. They would not be able to handle the administration tasks independently without supervision.
The will would be admitted to probate. During probate, the court would supervise the executor, while the executor conducts business of the estate. Conducting business of the estate involves the payment of final debts, so creditors must be notified. The creditors are, then, given time to come forward to seek satisfaction.
The executor will identify and inventory the assets and prepare them for distribution to the heirs. Appraisals and liquidation of property will be necessary, and these things take time.
While probate is underway, there is a proving of the will. The court will hear arguments that may be made by interested parties contesting the will. Probate is a public proceeding. Therefore, anyone, who is interested, can obtain the records to find out how the assets were transferred.
Since probate costs add up to consume between three and seven percent of a typical estate, your beneficiaries will inherit less. Ultimately, the inheritors will receive their bequests. However, it will take about eight or nine months at minimum in most cases. A Payable on Death Account may not be the best solution for you.
Payable on Death Account
You can open up a payable on death account at a bank or a brokerage. When you do this, you simply add a beneficiary, who inherits the assets after you are gone.
Since the court would not be involved, you avoid the drawbacks of probate.
It is possible to name multiple beneficiaries, and you can split up the transfers in different percentages if you choose to do so.
In addition to banks and brokerages, the transfer of an individual retirement account to a beneficiary would not be subject to probate. There are 19 states that offer transfer on death vehicle registrations, and Oklahoma is one of them.
Living Trust for Probate Avoidance
A transfer on death account will facilitate probate avoidance, but a living trust is a more comprehensive probate avoidance tool. You would act as the trustee while you are alive and well, if you establish a living trust. The living trust would be revocable, so you would be able to dissolve the trust at any time.
When you are drawing up the trust terms, you name a trustee to succeed you, and your heirs would be the beneficiaries. Any adult that is willing to assume the role can act as the trustee from a legal perspective. Additionally, there are professional fiduciaries that provide trustee services.
After your death, the trustee would distribute assets to the beneficiaries outside of probate; however, this is just one of the benefits.
Unfortunately, a significant percentage of elders become unable to make sound decisions at some point in time. If you have a living trust, your successor trustee or someone else, that you name, can be empowered to act as a disability trustee in the event of your incapacity.
You can include a spendthrift provision to protect assets from the beneficiary’s creditors. Plus, you can dictate the terms of the distributions. If you want the beneficiary to receive limited distributions on a monthly basis for an extended period of time, you can set those terms.
You can list all or most of the assets that comprise the estate on a schedule, which streamlines the asset identification and inventory process. You could use a pour over will to account for assets that were never conveyed into the trust.
This type of will facilitates the transfer of the assets into the trust after your passing.
Schedule a Consultation Today!
A living trust can be the right choice for many people. However, there are many tools in the estate planning toolkit. Through a consultation, we can gain an understanding of your situation and your objectives. Then we can explain your options, so you can make fully informed decisions.
If you are ready to get started, you can schedule a consultation at our Oklahoma City estate planning office, by calling 405-843-6100. You can alternately send us a message to request a consultation appointment. You can also schedule a consultation at our Tulsa office by calling 918-615-2700.
Since founding Parman & Easterday in 1985, Larry has led over 1,000 free, community-service education programs and helped more than 10,000 Oklahoma families go from putting off their estate plan to getting it done. His goal for every client is the same: to become the person their family calls "the one who took care of everything."
Larry is the author of three books: The Straight Shooter's Guide to Estate Planning; Estate Planning Basics; and Guiding Those Left Behind in Oklahoma. He served as Oklahoma's Secretary of State and Secretary of Commerce, and his firm is the only member of the American Academy of Estate Planning Attorneys in the state.
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