Why You Want to Avoid Probate
Probate is the legal process of distributing a person’s assets after their death. This court-supervised proceeding occurs in phases and must be done in accordance with Florida’s Probate Code. In general, probate involves the following steps:
- Filing a petition;
- Appearing in court;
- Compiling a list and value of the decedent’s assets;
- Notifying creditors, heirs, and beneficiaries;
- Paying off debts and taxes; and
- Distributing the remaining property to the decedent’s family.
Probate can be lengthy and costly, and it delays your family’s inheritance. By avoiding probate, your loved ones can use and enjoy your assets sooner, and the chances are good that there will be more left over for them to inherit. The cost of probate is paid by the estate, so all of the court filing fees, notice publication costs, executor or personal representative’s compensation, and fees for professional services (e.g., accountants, lawyers, appraisers, etc.) come out of your family’s inheritance.
By retitling assets, you can create a more efficient transfer of property when you pass away. One way to do this is with automatic transfers that occur after your death. These can be either transfer on death or payable on death designations. So what’s the difference between payable on death and transfer on death? We’ll walk you through it.
What Is Payable on Death?
Payable on death (POD) is a type of designation you can put on an account that allows for an automatic transfer of money at death. Florida recognizes this type of estate planning tool as a valid way to avoid probate. A POD designation is often used for checking, savings, and money-market accounts.
POD accounts offer great flexibility and control for the account owner. For example, while you are alive, you retain full access to the money in the account and can use it however you wish. You have no obligation to leave a certain amount for the beneficiary. You can designate more than one beneficiary of a POD account and remove or add beneficiaries at any time. However, the beneficiary has no right to the funds in the account until your death.
Another benefit of POD accounts is they are simple and inexpensive to set up. To include the POD designation on an account, you just need to fill out a form with the bank or brokerage that houses the account.
What Is Transfer on Death?
Transfer on death (TOD) accounts function the same way as POD accounts in that the assets automatically pass to the beneficiary once the account owner dies. TOD designations, however, are used for brokerage accounts and transferring stocks and bonds. With a TOD account, you own the securities or brokerage account and name a beneficiary. During your lifetime, you can sell or gift the security, remove and add beneficiaries, or close the account entirely. Again, the beneficiary has no right to the securities or the account while you are alive. The beneficiary has to provide basic documentation such as a death certificate and proof of identity to receive access to the account.
Like a POD account, TOD designations are easy to establish and allow you to avoid probate.
Is Transfer on Death a Good Idea?
There are plenty of advantages and disadvantages to setting up a TOD account.
Pros
Avoids probate
A TOD designation keeps the account out of probate. Rather than waiting for the entire probate administration process to complete, the beneficiary gets immediate access to the funds in the account.
Easy and inexpensive to create
Setting up a TOD account can be done simply by completing paperwork. Usually, there’s no cost to do this.
Cons
Needs to be updated
If you make changes to your estate plan, such as naming different beneficiaries in your will, you want to be sure that you update your TOD account. By failing to do this, there may be some unintended consequences where one family member inherits more or less than the other.
Unequal treatment of beneficiaries
Leaving $100,000 in your will to a family member is not the same as leaving a TOD account with a $100,000 value to another beneficiary. Remember, your estate pays for all of the probate expenses and financial obligations that remain at your death. So the $100,000 that you gifted in your will is only paid to your loved one if all other debts are satisfied first. On the other hand, the TOD account beneficiary gets automatic access to the account regardless of whether your bills are paid or not.
Insufficient funds to pay final expenses
Even at death, your estate still has to pay your bills and taxes. A potential risk with a TOD account is not having enough funds in your estate to cover your financial obligations. Although keeping assets out of probate is usually the main motivator for setting up a TOD account, it can cause problems when it comes to covering your final expenses.
Contact the Experienced Estate Planning Attorney at Beller Law, PL
Estate planning is an individualized process. By working with our estate planning attorney at Beller Law, PL, you’ll receive a custom plan tailored specifically to your needs. With over 25 years of legal experience, our lawyer continues to provide exceptional estate planning services to families in Duval, St. Johns, Clay, Nassau, Flagler, and Putnam counties.
We want you to feel confident and comfortable with your estate plan. That’s why we take the time to educate you as we work together to achieve your goals. Contact us today, and let’s start protecting your assets and planning your legacy.