Dear Jonathan: My wife and I have a pretty modest estate. Basically, we have our home and a couple of bank accounts. We only have one child, a daughter, who will be the beneficiary of all of our assets. We know we don’t need a complicated estate plan, but at the same time, we want to make sure that what assets we do have pass to our daughter without having to go through probate. From doing our own research, we realize that we could set up a trust and retitle our home and bank accounts to that trust. If we do that, it is our understanding that those assets avoid probate at our death.
Is there any other type of plan we could put in place that would allow us to avoid probate without having to go through the expense of setting up a trust? We have some friends who are in a similar situation as us and they prepared a beneficiary deed transferring their home at their death to their children. Is that something we should consider doing? Does it work?
Jonathan says: A beneficiary deed, also known as a transfer on death (TOD) deed, is simply a deed that you and your wife would sign now, which names your daughter as the beneficiary of that property upon the death of the second one of you to die. In other words, even though you are signing the deed now, it does not take effect until the second one of you dies. Until then, you can change your mind and revoke that deed or sell the property.
You can also do the same thing with your two bank accounts. You can name your daughter as the beneficiary of those accounts pursuant to a TOD designation upon the death of the second one of you to die.
If at the death of the second one of you to die, your home and your two bank accounts are the only titled assets you have, then by naming your daughter as the beneficiary on those bank accounts and deed you would effectively avoid probate as to those assets because they will automatically be titled in your daughter’s name at that time.
In this event, the trust would not be necessary because the TOD designations would accomplish the same thing, i.e., probate avoidance. However, in the event your daughter predeceases you, then the TOD designations will fail you because there will not be a beneficiary alive to receive those assets. Consequently, those assets will end up having to be probated in the estate of the last one of you to die. This is where the trust is more advantageous because you can provide for a contingent beneficiary in the trust to receive those assets in the event your daughter predeceases you.
Beneficiary deeds are not available in all states. As of this writing, those states that permit beneficiary deeds include Alaska, Arizona, Arkansas, Colorado, District of Columbia, Hawaii, Illinois, Indiana, Kansas, Minnesota, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Ohio, Oklahoma, Oregon, South Dakota, Virginia, Washington, West Virginia, Wisconsin and Wyoming.
If you live in one of the above-referenced states and you are interested in pursuing the idea of preparing a beneficiary deed, I recommend that you meet with an estate planning attorney in your area who can discuss this issue with you in more detail. At the same time, you may want to discuss with that attorney how having a trust, as well as other estate planning documents such as a will, a durable power of attorney for financial matters and a durable power of attorney for health care matters can benefit you and your wife.
Good luck.
Jonathan J. David is a shareholder in the law firm of Foster, Swift, Collins & Smith, P.C., in Grand Rapids, Mich.
