There are numerous different steps that you can take to facilitate postmortem asset transfers. Some of them are more effective than others, and one very limited possibility is the payable on death account.
This is a type of account that you can open at a bank or brokerage. To a large extent, the way that it works is self-explanatory. You add a beneficiary when you create a payable on death or transfer on death account. After you die, the beneficiary assumes ownership of anything that may remain in the account.
On the positive side, your beneficiary does not have access to the funds while you are alive, so there are no risks on that level. In addition to this, the transfer of assets to the beneficiary would take place outside of the process of probate.
This is a legal process that comes into play when you transfer personally held property through the utilization of a last will. We should point out the fact that it could also enter the picture if you pass away without any estate planning documents at all.
The process of probate is in place to provide certain protections, but it is not always going to benefit the rightful heirs to the estate. The people who are named in the last will as inheritors cannot receive their inheritances until after the process has run its course, it can take approximately one year if the case is not particularly complicated.
Asset transfers to the beneficiary of a payable on death account would not be subject to the probate process.
Drawbacks to Consider
All of the above may sound great, there are some drawbacks and limitations to consider. For one, you may be able to add multiple beneficiaries, but many institutions require equal distributions. You may want to split up the assets in a different way.
You could instruct the beneficiary to distribute the assets among multiple people, but there would be nothing compelling the beneficiary to follow these verbal instructions. This is another limitation.
There is no way to account for incapacity when you create this type of account, and there are no tax or asset protection benefits.
A payable on death account may be better than nothing under certain circumstances, but there are more comprehensive solutions that can be implemented. The best way to proceed when you are planning your estate is to understand all of your options. Your estate plan should be custom crafted to ideally suit your needs, and you should act in a fully informed manner.
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