We have all heard the stories of probate taking inordinate amounts of time, tying up assets, and generally causing trouble for our loved ones during a time of great grief. In most cases the process is relatively smooth and straightforward here in Colorado under existing laws. In other states that is not necessarily the case. Probate laws are constantly evolving in many ways but the likelihood is that the process is here to stay. The good news is that there are ways to work within the law to make the process a bit easier to manage. I hope that this info will help you and your donors navigate the process more effectively.
It may be beneficial for you to have the ability to transfer money to heirs or other people outside of the probate process. One way to accomplish this objective is the use of a “Pay on Death” (POD) account. Typically these are for deposit accounts at the bank, and they could include Savings / Checking Accounts, Certificates of Deposit (CDs), etc. By setting up a POD beneficiary with your bank, this will allow your designated person to receive these funds upon your death and it is very simple and outside of the probate process.
Once you have designated your beneficiary, upon your death the person will simply need to provide a copy of your death certificate along with their official identification and the funds will be transferred to them. There are a couple of things that you will want to consider, however, in such a scenario. First of all, it is not advisable to use this method to transfer all of your liquid assets. Using a POD account does not negate the probate process and so you do not want to risk leaving your estate with significant unfunded liabilities. It is likely that the government will seek to recover funds distributed through POD when taxes are unpaid by the estate.
It is also a good idea to establish a contingent beneficiary. This will help in the event that you outlive your beneficiary and fail to update your account. Having a contingent beneficiary allows you to exercise control over your asset and ensure that it is distributed according to your wishes. Another important consideration is to ensure that your will does not conflict with your POD account(s). This could cause stress and discord amongst surviving heirs as they attempt to interpret your intent.
For example, let’s say that you have 3 adult children. You have total net assets of $500,000 and you intend to divide everything equally amongst the children. You own a piece of commercial real estate with one of your sons and so you want to have some cash available to him in the event that dollars are needed during the probate process. To make this happen, you make him the beneficiary of a POD account with $50,000 in it. Upon your death, your executor is handling your affairs. If your will states that your net assets are to be divided equally, does that mean that the executor should deduct the $50,000 POD account from your son’s share after the probate process? If you are not clear about your wishes, something like this could cause strife and expensive legal challenges.
Lastly, it is important to mention that your beneficiary cannot access the funds while you are still alive, you maintain total control of it. You can spend all of the money if you wish, and you can change your beneficiary at any time. Also, it does not count as an asset for your beneficiary while you are alive, and so their creditors cannot attach it in satisfaction of beneficiary debt.
POD accounts are a good tool when used in the right way. POD accounts allows you to transfer assets quickly and easily without a lot of difficulty. Whether it is your relative, the future caretaker of your pet, or your favorite charity, you will be able to direct dollars effectively and efficiently with minimal administration or taxation issues.
Have a great week,