Can Listing Beneficiaries on Non-Probate Assets Backfire?

Conventional wisdom holds that the first step in estate planning is to write a will.  This way, when your estate goes to probate after you die, the court will distribute your property to your heirs in accordance with your wishes.  The next step is to keep as much of your property as possible out of probate, because creditors and the IRS get first dibs on your property during probate, and your heirs only inherit what is left after the estate pays its outstanding taxes and debts.  You can do this by placing money and other assets in a variety of non-probate assets, meaning that they are exempt from probate and can pass to your heirs almost immediately after the death of the original owner.  Transferring property through non-probate assets seems simple on the surface, but even though it enables you to avoid probate, it can create its own set of hassles if you do not think through the consequences carefully.  For help getting the most mileage out of non-probate assets, contact a Bronx estate planning lawyer.

What Are Non-Probate Assets?

Non-probate assets are property that passes directly to the beneficiaries listed by the original owner as soon as the original owner dies or, in some cases, even sooner.  These are some examples of non-probate assets:

• Life insurance policies – The beneficiary receives the policy amount upon the policyholder’s death. The beneficiary must be someone who depends on the policyholder financially.
• Bank accounts with transfer on death (TOD) beneficiaries – The beneficiary becomes the new account holder after the original owner dies.
• Investment accounts with payable on death (POD) beneficiaries – The beneficiary becomes the owner of the account upon the original owner’s death.
• Trusts – The trustee begins making installment payments to the beneficiaries as soon as the trust instrument indicates. This could happen as early as when the grantor funds the trust.

Thinking Clearly About Transferring Assets to Your Heirs Outside of Probate

The trouble with most non-probate assets is that they pay a lump sum to the beneficiary.  Most of us would rejoice at the thought of receiving a one-time payment of many thousands of dollars, but it could make things worse for certain beneficiaries.  For example, it is not a good idea to name a minor as a beneficiary of a non-probate asset, because the minor cannot get the money until he or she reaches adulthood, except by going through a complicated court process.  Likewise, a beneficiary who receives public benefits because of a disability could lose his or her benefit eligibility because of the inheritance.  It could also cause more harm than good if a family member who is struggling financially gets a lump sum.  He or she could spend the money on his or her ongoing money-sucking circumstances and end up worse off than before.  In these cases, it is better to establish a trust so the beneficiaries can receive the money in installments.

Schedule a Confidential Consultation With a Bronx Estate Planning Attorney

An estate planning lawyer can answer your questions about designating beneficiaries for non-probate assets.  Contact Cavallo & Cavallo in the Bronx, New York to set up a consultation.

Source:

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