While a revocable living trust is a common estate planning tool for avoiding probate, using a trust is not the only way to avoid probate. To be clear, we prepare many, many living trusts. Family trusts are the foundation of perhaps most good estate plans that I see.
Listing Beneficiaries to Get Around Probate
But there are assets that, by their nature, avoid probate. These include life insurance, IRAs and other retirement accounts, and annuities, to name a few. This is because typically, and I should say only when, beneficiaries are listed. When a beneficiary is listed, by contract, the life insurance proceeds or retirement account funds pass directly to the named beneficiaries. No probate necessary.
However, it is important to name contingent or secondary beneficiaries just in case the primary beneficiary dies
before you. If the primary beneficiary predeceases you and no secondary beneficiary is listed, the proceeds will usually end up in probate court.
Bank Account Beneficiary Designations
Similar to a life insurance policy, banks and other financial firms, such as brokerage firms, allow you to list beneficiaries on the account. These are typically referred to as pay-on-death (POD) accounts, transfer-on-death (TOD) accounts, or an in-trust-for (ITF) accounts. Such accounts go by different names at different financial institutions, but work essentially the same way.
As explained above with a life insurance policy, it is important to name a contingent beneficiary on the account just in case the primary beneficiary dies before you do. And as long as a beneficiary survives you, the account can pass to the beneficiary.
Transferring Real Estate upon Death
In Nevada, you can now place a beneficiary on title to real estate. This is completed by recording a “deed upon death.” Some states refer to it as a “beneficiary deed.”
In any case, such a deed may list beneficiaries much like a bank account. The deed is recorded with the county recorder, but does not transfer title to the property until your death. At that time an additional document is filed along with your death certificate and the transfer to the beneficiary is triggered.
In the meantime, you still have full rights to and control of your property. You can mortgage it or sell it whenever you like.
Trusts Work in a Similar Way
Of course a living trust also works by way of listing beneficiaries that ultimately inherit the assets. And since beneficiaries are listed, no probate is required for the assets placed into the trust. There are also advantages to the trust.
One key benefit to a trust over the other methods of avoiding probate discussed above is their flexibility. With a well drafted trust, you can plan for many contingencies that are often just too difficult to spell out in a beneficiary designation form given to you by the bank or your life insurance agent.
Another benefit to a trust concerns asset protection. Because of the spendthrift provision normally found in living trusts, the trust assets are protected from creditors of your beneficiaries as long as the assets remain in the trust.
So you can see that there are different ways to avoid the probate process. However, given their flexibility and advantages, revocable living trusts are often the recommended method of passing on one’s estate.