A person’s estate can be structured in such a fashion that one’s assets pass outside of probate. This saves time, frustration, and most importantly, money. A good estate plan can accomplish all of this and distribute a person’s property according to his wishes while minimizing income, estate, and inheritance taxes, attorney’s fees, and administrative costs.

Beneficiary Designations for Bank Accounts, Retirement Accounts, Securities, and Vehicle Registrations

Bank Accounts

Large sums of money can pass to the beneficiary through a payable-on-death bank account. The bank account owner simply fills out a bank form that indicates to whom the account should pass upon the death of the account holder. The beneficiary has no rights to the account until the account owner dies.

Retirement Accounts

An owner can designate beneficiaries for a retirement account such as a 401k or IRA. Upon death of the owner, the account custodian transfers the account directly to the beneficiary. A spouse is automatically entitled to receive one-half of a 401k account unless he or she agrees to another beneficiary in writing.

In those states having community property laws, a spouse is usually entitled to half of what is earned in a retirement account during the marriage.

Securities or Brokerage Accounts

Owners of securities or brokerage accounts are also entitled to designate beneficiaries. The securities, stocks, or brokerage accounts pass directly to the beneficiary upon death without going through probate. As with bank accounts, the owner remains in control of the account until death.

Vehicle Registration

California, Connecticut, Kansas, Missouri and Ohio allow automobiles to pass to beneficiaries designated on the vehicle registration. The owner is free to change this designation and may sell the car during his lifetime.

Life Insurance Policies

Many individuals choose to pass money to their heirs through the use of life insurance policies. The benefits of a life insurance policy pass directly to the beneficiaries
Revocable Living Trusts

A revocable living trust is a vehicle for transferring a person’s property to a trust to be held for the benefit of an individual or individuals. The trustee, often the person whose property is being transferred, manages the trust. At the time of death, a successor trustee takes over the trust and distributes its assets in accordance with the trust’s directions. In this manner, money can be transferred to beneficiaries without the necessity of probate.

Joint Ownership of Real Estate

Joint Tenancy with Rights of Survivorship

Another method of transferring property without the necessity of probate is to title property jointly. One form of joint ownership, joint tenancy with rights of survivorship, is commonly used by couples, married or unmarried. Bank accounts, real estate, securities, and other property can be titled in this fashion and then transferred to the other owner.

Joint Tenancy by the Entireties

This form of joint ownership is for married couples (and in some states, same-sex couples). It works in the same manner as joint tenancy with rights of survivorship, and the property passes to the other spouse/partner upon death.

Community Property with Rights of Survivorship

In community property states, married couples can co-own property and have the property pass to the other spouse upon death. No court filing is required to own and pass property this way.

Gifts

Another way to avoid probate is to gift property to others before death. Because probate proceedings cost more based on the total dollar amount of the estate’s assets, fewer assets equal lower probate costs. A person must file a federal gift tax return if he or she gives away more than $12,000 per year per person.