How Can You Avoid Probate in Your State?

October 27, 2016

One of the most common estate planning goals is to avoid probate, which is the process by which the court processes your estate. That’s because probate is public, can cost thousands of dollars, and can take months of time before your heirs inherit your property. Contrary to popular belief, having a will does NOT avoid probate. Having a living trust can help you avoid probate in most states, but these can thousands of dollars for an estate planning attorney to draft. Here are some lower cost way to avoid probate that may be available in your state:

Titling assets jointly with rights of survivorship: When you pass away, these assets will immediately pass on to the joint owner. However, be aware that this is essentially a gift to the joint owner, which means they (and their creditors) will have full legal access to it. In addition, the asset will go through probate when the joint owner eventually passes away as well.

Adding beneficiaries by contract: When you have a living beneficiary on a retirement account, life insurance policy, annuity, 529 or Coverdell education savings account, or health savings account, those assets will not go through probate. Unlike with joint ownership, the beneficiaries do not own the account until you pass away and you can designate contingent beneficiaries in case the beneficiary passes before or at the same time as you. In some cases, the beneficiary can also continue the tax benefits of these accounts. The downside is that this option is not applicable to other types of assets.

POD or TOD: By adding a “payable on death” (POD) designation on a bank account or a “transfer on death” (TOD) designation to an investment account, you can avoid probate on these assets as well. Some states will even allow you to add a TOD designation to a vehicle registration and to real estate (often known as a beneficiary deed). However, many institutions may charge a nominal fee or not even allow it at all. This also can’t be used for most tangible possessions like furniture, jewelry, artwork, etc. For those, you might need a trust.

Your choice isn’t just between paying thousands of dollars for a living trust or allowing your estate to go through probate. Check to see what other options are available in your state. It may not benefit you now, but your heirs will thank you.

Who Would You Trust With Your Money?

July 20, 2016

Would you hand a loaded weapon to someone you just met? No matter where you side on the gun debate, probably 99.99% of people would emphatically say “no!” Yet we are often asked to sign a power of attorney (POA), a document giving the power to make financial decisions on your behalf to people that you just met, and probably a lot more than 0.01% of us say, “yes” to that. Perhaps sometimes we should think twice about this.

I’m not saying that powers of attorney are a bad thing. It just means that financially speaking, they are like a loaded weapon. In the hands of someone with lots of training and experience and who you trust, they can be a lifesaver, but in the wrong hands, they can have disastrous results. So how can you make sure that you handle your POA properly?

First, decide if this is going to be a permanent agreement or conditional on certain things happening. A permanent POA is called a durable power of attorney and lasts until you revoke it. My wife of 23 years has my durable financial power of attorney because I trust her completely, and I travel a lot so I could be gone when an important document needs to be signed. That said, in today’s world of e-signatures, the “travel a lot” reason becomes less and less compelling. Because this kind of POA is the most powerful, it should also be used with the most caution.

A POA that kicks in based on certain conditions is called a springing power of attorney. This is often used in case you are ill or injured and unable to make decisions for yourself. A springing POA gives someone the ability to make those decisions instead of the probate court so it is a very important thing to have. Just remember that even though this POA is far less likely to be used, it still has the same power if it kicks in, so be sure to choose your POA wisely.

In terms of how to choose someone, it comes down to competence and confidence. Does this person have the education and experience to do the job AND do I trust them to look out for my interests and no one else’s, especially their own? You may choose your spouse or a close/trusted friend or family member, although these choices may change as you age. Just make sure that you let them know who your experts are – financial advisor, CPA, attorney – and vice versa. This way, they at least know where you prefer to get your expertise.

In some cases, you may need to give those experts a POA. This could be the case when it comes to a CPA who has to defend you from an IRS audit. That makes sense.

Again, just make sure that you have vetted this person. To properly vet them, you should probably interview 3 possible candidates for the job to see if your gut says that you trust them, but more importantly, you should check with the organization that gives them their credentials and with regulatory agencies to look for complaints before you give them a POA. If you have access to a service that does background checks, that would be ideal.

Financial advisors often get a limited POA to make investment decisions on your behalf if they manage your assets. This can be a good thing if it allows them to sell a stock about to tank while you are on a beach vacation, but make sure that it is very limited. Have an attorney review any limited POA or agreement giving an investment advisor “discretion” over your account.

Most of the time these are straightforward. You hired them to make the decisions on the investment choices within your risk tolerance, and this lets them do that. Beware, however, of an investing POA that allows them to invest in things like limited partnerships, LLCs, closely held companies, or basically anything that isn’t publicly traded. That is a big red flag and has often led to fraud.

Now you’ve had your “course in POA safety.” You should be ready to confidently appoint the right person to take your financial life in their hands. Who will you choose?

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What are the Minimum Documents I Need for a Basic Estate Plan?

April 21, 2011

The other day I was spending some quality time with a very good friend of mine, enjoying the nice spring weather and having a great time talking about various topics, when as often happens the cell phone rings. After seeing who it was, my friend decided to answer it, gesturing that it would be a short call. Prescient she wasn’t as it turned out to be not only a long call but emotional as well. Now I’m not one to engage in the art of eavesdropping but in this call I did not have to. Continue reading “What are the Minimum Documents I Need for a Basic Estate Plan?”