Probate is the court-supervised process that takes place when someone dies owning assets in their name. Probate is necessary if you die with assets in your name, even if you have a last will and testament. Because probate can be expensive and timely, many people set up their estate to not burden their survivors with the hassles, time and expense of a probate process. This article addresses the steps you can take to avoid probate.
Step 1: Create a Living Trust Plan
The first step to avoiding probate often includes setting up a revocable living trust by selecting our Living Trust Plan when creating your account. By creating a living trust and having your assets titled in the name of the trust, you have set up a legal instrument that allows a defined trustee to manage those assets. Initially, you will be the initial trustee. You will define a successor trustee who, upon your incapacity or death, takes over as the primary trustee. The primary trustee can take immediate actions to secure, maintain, sell (if necessary) and distribute assets without involvement from a probate court. When you set up your trust, you will make designations that include:
- Who will receive the trust assets after you pass away;
- Who will be in charge of settling your trust when you pass away; and
- What rights and duties your trustee will have in settling your trust.
Step 2: Transfer assets from your name to your trust
Now that your revocable trust has been established, it is imperative that it be funded properly. Assets that may need to be transferred to or re-titled in the name of the trust include real estate, motor vehicles, boats, airplanes, business interests, U.S. Savings Bonds, Certificates of Deposit (CDs), non-retirement investment accounts, and individually held stocks and bonds. If you do not transfer these assets to your trust, a probate may be necessary to transfer these assets to your heirs after your death. The following are instructions for transferring various assets. Investigate whether your state or county/parish charges a transfer fee or tax for retitling your assets. Generally, this is not expensive.
Ensure the trust is funded properly
If you do not transfer these assets to your trust, a probate will be necessary to transfer these assets to your heirs after your death. It is important that all of your titled assets are transferred to the trust as soon as possible. It is also important that any new property or titled assets be acquired in the name of the trust to avoid having to transfer them at a later date. Assets that may need to be transferred to or re-titled in the name of the trust include:
- Real estate
- Bank accounts
- Savings bonds
- Certificates of Deposit (CDs)
- Investment/brokerage accounts
- Individually held stocks and bonds
- Titled motor vehicles, watercraft, airplanes, etc. You may choose to re-title these assets, but this is not always done as they tend to be bought and sold more frequently.
Do not immediately re-title your IRAs, 401(k)s, insurance policies, and annuities
You should review who you have named as the beneficiaries. Upon your death, these accounts are paid directly to the beneficiaries and mostly avoid flowing through probate. Some people name their trust as the beneficiary which can have tax consequences, so consult a tax professional before making this change.
Communicate with successor trustees
Make sure that all listed successor trustees are aware of the possibility of being called upon to serve as trustee and that they know where to find a copy of the trust in the event they are called upon to serve as trustee. Use the MyAdvocate dashboard to notify your trustee which will provide them with educational material on the role.
Begin keeping a record of all trust assets to ensure nothing is overlooked when the trust is terminated. Document how trust assets are secured and maintained. All financial transactions and expenses should be recorded.
Contact your property and casualty insurance agent to ensure that your coverage provides for your new trust owning the assets you transferred. You may want to add your trust as an additional insured to your homeowner’s or vehicle insurance policies to provide coverage to the trust in the event of a claim. There should be no change in the premium for doing this.
Details for each asset type;
To transfer your real estate interests to your trust, in many cases you can use an online service such as deedclaim.com, or you can contact an attorney in your area.
To transfer your bank accounts to your trust, you can simply go to your bank and tell them you would like to set up a trust account and transfer your current accounts to it. Some banks may even allow you to change the name on your accounts to the name of your trust without changing the account numbers.
To re-title registered motor vehicles, contact the agency where the vehicle is currently registered, which will most commonly be your state’s department of motor vehicles. This is a common practice for your DMV.
Boats and Other Watercraft
To re-title boats or other registered watercraft, contact the agency where the watercraft is currently registered. Depending on the state in which the watercraft is registered and the type of watercraft, you may need to contact your state’s wildlife & fisheries department, department of motor vehicles, or the United States Coast Guard.
For instructions on how to re-title aircraft in the name of your trust, visit the FAA at: https://www.faa.gov/licenses_certificates/aircraft_certification/aircraft_registry/aircraft_under_personal_family/
If you have transferred your membership interest in an LLC or ownership interest in a closely held or private corporation, be sure to send a copy of the transfer document to the secretary of the company so they have a record of the transfer of ownership. If you maintain the records for your company, be sure to update the member/shareholder information from your name to the trust’s name in the company books and when filing your next report with the state.
If you have transferred an interest in a Subchapter S Corporation, be sure to notify your CPA so they can make any necessary elections with the IRS to have your corporation maintain its tax status. Your Trust is unlikely to affect your Subchapter S Corporation status, but we recommend that you speak with your CPA to notify them of the transfer. If the status is affected, your CPA has 2 months and 15 days from the date of the transfer to make this election, so notify them as soon as possible.
U.S. Savings Bonds
You may need to complete a Request to Reissue United States Savings Bonds to a Personal Trust. This form is available online at http://www.treasurydirect.gov/forms/sav1851.pdf. Any questions regarding proper completion of this form may be directed to the Treasury at 1-800-245-2804.
Certificates of Deposit
Your bank or credit union may or may not allow you to transfer ownership of your CDs to your trust immediately. Each financial institution has a different policy. Some will allow you to simply change the name on your CD account to your trust’s name. If you are allowed to do this, you should do it as quickly as possible.
Other banks/credit unions will not allow a name change until the CD matures or unless you close out the CD with a penalty attached. If this is the case, you must decide whether you want to risk waiting for the CD to mature and hope it does so during your lifetime or you may want to close out the CD and reopen it in the name of the trust. It is important to note that if you pass away prior to transferring ownership of your CDs to your trust, the CDs may have to go through probate to be transferred to your heirs.
The best place to start is with your financial advisor. Oftentimes, having your account(s) transferred to your trust is as simple as calling your advisor and telling them you have established a trust to which you would like to transfer your non-retirement accounts. Your advisor will be able to provide you with any forms you may need to sign to establish your trust account. In some states, you may be able to name beneficiaries of your investment/brokerage accounts instead of transferring these accounts to your trust. If your financial advisor informs you that you are in one of these states, they will be able to help you name your desired beneficiaries.
If your account is one that is not handled by a financial advisor, your best source of information will be the company at which the account is located. Call the company’s customer service number and tell them you have established a trust and need to change your individual account to a trust account. The company representative will be able to direct you to the proper forms you must complete and send back to them.
Individually Held Stocks
If you own stocks outside of an investment/brokerage account, you will need to contact the company in which you own the stock and ask them how to transfer ownership of your stock to your trust. The company representative will be able to direct you to the proper forms you must complete and send back to them.If your stocks are held with Computershare, you can use their online transfer wizard at https://www-us.computershare.com/transferwizard/ or contact Computershare to request transfer forms.
Accounts with Named Beneficiaries
Finally, it is important to be sure you have named beneficiaries on all accounts for which this is an option. These include IRAs, 401(k)s, other retirement accounts, life insurance policies, some annuities, and investment/brokerage accounts in some states. If you do not name a beneficiary on these accounts, the funds will be paid to your estate upon your death, and a probate will be necessary.
While most people name a spouse or child as the beneficiary of such accounts, you may choose to name your trust as the beneficiary. For instructions on naming a trust as the beneficiary of an account, please see the next set of instructions entitled, “Instructions for Naming a Trust as a Beneficiary.” If you want distributions from these accounts for the benefit of minors or other beneficiaries to be managed in trust see “Instructions for Naming a Trust as a Beneficiary.”
Instructions for Naming a Trust as a Beneficiary
If you have established a revocable trust or a testamentary trust in your last will and testament, you may want to name the trust as the beneficiary or contingent beneficiary of a life insurance policy, annuity, or other beneficiary designated account.
If your account/policy is handled by a financial advisor, they are the best place to start. Contact your advisor and let them know you have established a trust and would like to name the trust as the beneficiary of your account/policy. Your advisor will be able to provide you with the proper beneficiary designation forms.
If your account/policy is one that is not handled by a financial advisor, your best source of information will be the company at which the account/policy is located. Call the company’s customer service number and tell them you have established a trust and would like to name the trust as the beneficiary of your account/policy. The company representative will be able to direct you to the proper beneficiary designation forms.
Step 3: Acquire assets in the name of your trust
As you acquire assets after you form your revocable living trust, acquire them in the name of your trust. For example, if you purchase a home or other investment property in the future, make sure that it is owned by the trust. If you own assets in your name when you pass away, your loved ones will be required to go through the probate process to have those assets transferred out of your name.
Get started today
Probate can be costly, time-consuming, and inconvenient to your survivors. If you want to make the settling of your estate easy and efficient, consider establishing a revocable living trust as part of your overall estate plan, and transfer the title of your “probate assets” to your trust. This way, the successor trustee of your trust that you designate will be able to access and maintain your trust assets when you pass away and distribute them without delay to your trust beneficiaries.