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Estate Planning: What You Can Do To Avoid Probate - Sarah Kang, Certified Financial Planner (TM)

Jul. 16, 2020 2:10 PM ETSPDR® S&P 500 ETF Trust (SPY)
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Summary

  • After a person passes away, each state has a process called probate that certain assets must go through in order to have ownership reassigned.
  • In almost every case, there are simple things you can do now to make the passing of property (anything you own) efficient and effective to avoid probate.
  • Many people think that a will governs who gets what after one’s death.

Estate planning sounds like something only Queen Elizabeth needs to do, but actually everyone has an estate. If you own property, financial accounts, or life insurance, then you have an estate.

After a person passes away, each state has a process called probate that certain assets must go through in order to have ownership reassigned. While it sounds simple (and once in awhile can be), it is notorious for being time consuming and contentious. This is because 1. You’re dealing with the government and 2. Sometimes the surviving family do not agree with the decisions made by the deceased and choose to contest a will or other distribution of an asset.

In almost every case, there are simple things you can do now to make the passing of property (anything you own) efficient and effective to avoid probate.

Here they are:

  1. Check your beneficiaries on all your retirement accounts. By law, retirement accounts pass directly to the designated beneficiary at the death of the owner and do not need to go through probate. In fact, if you designate someone in your will (which is validated in probate) to receive the account when you pass away, it will be overridden by the account designation. This is especially important if you have had a life change recently, such as marrying, divorcing, having a new child, or a spouse passed away.
  2. Consider adding a Transfer on Death (TOD) to bank accounts. While bank accounts do not have beneficiaries, you do have the option to sign a simple document that will legally transfer the assets upon death to the person you choose. Without this, a solely owned account would need to go through probate to have ownership of the account reassigned.
  3. Change real estate property to a TOD.* Sole owners of property who will not have a Medicaid lien on their property after death can easily add a TOD to eliminate the need to go through probate. This is ideal for a surviving spouse who has become sole owner, would like to keep the property, and would like it to pass down to the next generation. *Not available in all states.
  4. Update your life insurance beneficiaries. Just like with retirement accounts, life insurance proceeds pass directly to the beneficiaries by law. A will cannot override this. Make sure the people you would like to benefit have not changed and make sure the beneficiary is not yourself or your estate unless you have discussed this as a tactical maneuver with a estate planning lawyer or advisor.

Many people think that a will governs who gets what after one’s death. It is very misleading to believe that way. It may have been that way several generations ago in the U.S. However, the majority of wealth for modern Americans is stored in financial assets and real estate. The laws governing financial assets and real estate are well developed to the point that a will is not necessary. Truly a will is for whatever is outside of financial, insurance, and real estate assets, such as arts or collectibles.

Your friends

Sarah & Ujae Kang

UAK Diversified Wealth Management

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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