By Anne Sallee Mason, Attorney at Law with Neale & Newman, L.L.P. practicing in the areas of Estate Planning, Trust and Probate Administration — (417)882-9090 — firstname.lastname@example.org
A lot has been written about the use of a Revocable Living Trust to avoid probate. Many people are not aware that, if your primary goal in your estate plan is to avoid the necessity of probate, there are other ways in which this can be accomplished. One common method is through the form of joint ownership. There are, however, a number of situations in which creating a joint ownership can be disastrous, especially if you are making an asset joint with someone other than your spouse, such as a child or other family member. There is another method created by the Nonprobate Transfers Law of Missouri that is preferable to joint ownership under most circumstances. This law allows you to register many kinds of assets in a manner allowing you continued full ownership of the assets for life, but, upon your death, the asset will pass to a designated beneficiary without requiring probate administration. The most common types of assets that can be transferred by way of a nonprobate transfer are as follows:
Payable on Death (POD). Certain types of property can be transferred without probate by way of a “payable on death” (POD) designation. This form of registration is used most commonly with bank accounts (including checking accounts, savings accounts, and certificates of deposit). It can also be used with stock certificates and U.S. Government bonds. To make a “payable on death” designation, you title the account or certificate in your name POD to a designated beneficiary.
Transfer on Death (TOD). Other types of assets can be transferred by way of a “transfer on death” (TOD) designation. This form of registration is used primarily for assets which have a certificate of title, such as automobiles, trucks, boats, trailers, and other similar assets. You can obtain a “transferable on death” certificate of title so that the face of the title states your name as owner TOD to a designated beneficiary.
Beneficiary Deed of Gift. A nonprobate transfer can also be done with items of tangible personal property that do not have a certificate of title, such as jewelry, furniture, and household goods. This is done by way of a Beneficiary Deed of Gift which transfers your ownership interest in the tangible personal property upon your death to the designated beneficiary.
Beneficiary Deed for Real Estate. A nonprobate transfer for real estate is done with a Beneficiary Deed. A Beneficiary Deed is a deed that transfers real estate to designated beneficiaries upon the owner’s death. The deed must be executed and recorded with the appropriate recorder of deeds prior to the death of the owner, but it has no effect until the owner’s death.
Beneficiary Assignment of Contract Rights. Rights under a contract can be transferred in the form of a Beneficiary Assignment. This is a written assignment that assigns the right to receive any performance remaining due under a contract to a designated beneficiary upon the owner’s death.
With all nonprobate transfers, the transfer has no effect until the death of the owner. Upon the death of the owner, the asset passes automatically by operation of law to the designated beneficiary or beneficiaries. If there is more than one owner, the transfer will happen upon the death of the last to die of the owners. Prior to the death of the owner(s), the designated beneficiary has no rights in the property and the signature or agreement of the designated beneficiary is not required for any transaction respecting the property. If the owner of the property sells or transfers his ownership during his lifetime so that he no longer owns the property at his death, this terminates the beneficiary designation with respect to the property.
In addition to being a probate avoidance tool, nonprobate transfers can also be used as a method of funding a trust. If you have a trust agreement but have certain assets that you want to leave in your individual name for convenience purposes during your lifetime, you can use nonprobate transfers to fund your trust by titling the asset in your individual name payable on death to the successor trustee under your trust agreement.
Nonprobate transfers are a wonderful probate avoidance tool to be used as a part of your estate plan. It is important, however, to understand that these methods should be used in conjunction with other estate planning documents, including a Durable Power of Attorney, a Last Will and Testament, and possibly a Trust. In addition, as with any form of estate planning, there are some risks involved of which you need to be aware. In determining whether nonprobate transfers are appropriate for you, you should consider all of your estate planning options with the assistance of a qualified professional.