Avoiding Probate: A Widow in Her 70s

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Maria is an Illinois widow in her 70s with a son and daughter in their 40s and two grandchildren. When her husband died six years ago, she inherited everything he owned. Their house had been held in joint tenancy, and was easy to transfer into her name after his death. Other assets, however, had to go through probate. Maria found the process confusing, tiring, and expensive. She is determined to spare her two children the burden of probate, as much as is reasonably possible, at her death.

To that end, she takes a quick inventory of her property. The most valuable asset is the house, which over many years has risen to $350,000 in value. The mortgage has been paid in full. She also owns two sizable mutual fund accounts, some IBM stock, some certificates of deposit at her bank, and a checking account. Some of Maria's other possessions aren't particularly economically valuable, but they are precious to her: a collection of stamps that she wants her grandson to inherit and the family china, which she wants to pass on to her daughter.

Maria's will was written 15 years ago, while her husband was alive and before their grandchildren were born. It leaves her entire estate to him, with their son and daughter as alternate beneficiaries. It would still work to pass her property to her children, but everything would have to go through probate, and it wouldn't leave the china or stamps to the people she now has in mind. Maria decides she would like both to avoid probate and fine-tune the way she leaves her property.

Bank accounts. First, Maria tackles the easy things. The bank accounts and CDs are quickly turned into payable-on-death accounts, with her son and daughter as the POD beneficiaries. The bank provides the form; all Maria has to do is list their names. The bank confirms that all the payees will have to do, to collect the funds after Maria's death, is present a copy of her death certificate, and identification, to the bank.

Stocks and mutual fund accounts. The stock accounts are also simple to handle, although the paperwork takes a bit longer. Because she lives in Illinois, which allows transfer-on-death registration of securities, she can simply reregister her ownership in transfer-on-death (TOD) form. Like the POD bank accounts, stock held this way will pass without probate to the beneficiaries she names.

Maria calls the mutual fund company and explains that she wants to register her ownership in transfer-on-death form. The company sends her a form to fill out, on which she lists her son and daughter as beneficiaries.

Maria also reregisters the IBM stock; her broker contacts the company's transfer agent to get the paperwork. But she wants her son's two children, who are both minors, to inherit this stock. So she names as beneficiary her son, as "custodian" for each of the grandchildren, under the Illinois Uniform Transfers to Minors Act. That way if the grandchildren inherit the stock before they turn 21, their father will manage it for them.

The house. Maria decides that a living trust is the best way to avoid probate for her house. So she creates a trust and signs a new deed, transferring the house to herself as trustee of her living trust. She names her children as the trust beneficiaries.

Heirlooms. Because she's created a living trust, Maria decides to use it to leave some heirlooms—the stamp collection, set of china, and a few others, so they won't have to go through probate. So in the trust document, she leaves the stamps to her grandson, the china to her daughter, and a few other items to her son.

The car. Maria's car is an old Mercedes that her son has always loved. Maria decides to put her son's name on the title with her, as joint tenants. That way, he will inherit it at her death, without probate. She doesn't worry that giving him a half-interest will cause any problems. And because the value of the gift she is making is not worth more than $13,000, Maria does not need to file a gift tax return.

The leftovers. Finally, Maria makes a new will. Because she has taken care of almost everything in her trust, the will is short and simple. It says only that anything not specifically left by another method should go to her son and daughter, in equal shares. The will is essentially a back-up device, so that Maria knows that everything is taken care of. And Illinois's special procedures for small estates allow up to $100,000 of property to avoid regular probate.

Maria's Plan to Avoid Probate

Asset

Plan

House

Transfer by living trust.

Bank accounts and CDs

Name payable-on-death beneficiaries.

IBM stock

Register in transfer-on-death (beneficiary) form, naming a custodian to manage the stock if beneficiaries are still minors when they inherit.

Mutual funds

Register in transfer-on-death (beneficiary) form.

Stamp collection, family china

Transfer by living trust.

Car

Put into joint tenancy ownership with son.

Everything else 
(household belongings)

Pass under will (should qualify for special "small estate" transfer procedure).


Maria adds up the value of all her property. Because it doesn't come close to the Illinois or federal estate tax exemption amounts, she doesn't expect that her children will have to pay estate tax after her death, and she doesn't need to look into methods of reducing the tax bill.

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