Avoiding Probate: A Retired Couple of Modest Means

Taking some simple steps to avoid probate will make things easier for your family.

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Alice and Frank have always worked hard and have much to show for it: a comfortable home in a small Indiana town, four grown children of whom they are very proud, good friends. What they don't have is a lot of material wealth. Now in their late 60s and retired, they live on Alice's modest company pension, withdrawals from Frank's IRA, and their Social Security payments.

They've always figured that they didn't have enough money to concern themselves with estate planning, especially fancy trusts and the like. They do have straightforward wills, which leave their possessions to each other. The wills name their children as alternate beneficiaries; they'll inherit everything, in equal shares, after both Alice and Frank have died. But Alice and Frank want the kids to inherit their property without needless legal fees, delay, or hassles. That prompts them to look into some simple probate-avoidance techniques.

The house. The couple's most valuable asset is their house. It's long since paid for, and is probably worth about $95,000.

The deed to the property shows that Alice and Frank own it in tenancy by the entirety, a version of joint ownership limited to married couples. Because tenancy by the entirety comes with the right of survivorship, when the first spouse dies, the survivor will automatically own it, without probate. Alice and Frank discuss putting the house in joint tenancy with the children, but decide against it. They love their children, but just don't feel completely comfortable giving away ownership rights in the house.

They decide, finally, to make a simple living trust, and transfer only their house to it. They name all the children as beneficiaries, and their daughter Nancy as successor trustee. They've already named her to be executor of their wills. It will fall to her, as successor trustee, to transfer ownership of the house to all the children after both parents have died.

Bank accounts. Aside from the house, the couple's main asset is a savings account. It's held in joint tenancy with the right of survivorship. That means that when Frank or Alice dies, the survivor will automatically own the entire account, without probate. Alice and Frank could transfer the account to their living trust, but decide it's even easier to make their children payable-on-death (POD) payees for the account, so that when the survivor dies, any remaining funds will go directly to the children, again without probate.

They go to the bank, where a clerk gives them a short form to fill out. Then they list their children's names as the payable-on-death beneficiaries, sign the form, and give it back to the clerk. While they're at it, they do the same thing with their joint checking account. It doesn't have a lot of money in it, but the whole process takes ten minutes and costs nothing.

Frank's IRA. On a form provided by the company that handles his IRA, Frank has already named Alice as the beneficiary for this account. If he dies first, she'll inherit the money. If she dies before he does, the children are named as alternates. No probate will be necessary.

Alice and Frank decide that this is all the probate-avoidance planning they need. They'll leave the rest of their property--mainly household furnishings and personal items--through their wills, leaving it up their children to divide. Its total value should fall below the $50,000 cutoff for "small estates" under Indiana law. That means that it will qualify for simplified transfer procedures, which shouldn't be expensive or burdensome for the children.

Alice and Frank's Plan to Avoid Probate

Asset

Plan

House

Change from tenancy by the entirety to a simple living trust.

Bank accounts

Keep in joint tenancy; also name payable-on-death beneficiaries to inherit the funds after both parents have died.

Frank's IRA

No action needed; Frank has already named a primary and contingent beneficiary, on a form provided by the companythat administers his IRA account.

Everything else 
(car, household belongings)

Leave to each other by will. Should pass under Indiana simplified "small estate" procedures.



by: , J.D.

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