Hands Off: How To Use Keep Bank And Investment Accounts Out Of Probate's Reach

Avoiding probate may not be possible for most people. That doesn't mean, however, that there is nothing you can do to keep as much of your property as possible out of probate's reach. Read more about one such method below.

Why is Probate So Bad?

Many may wonder why allowing property to be processed by the probate court is so bad. In this case, it's not that it's so bad but that it presents survivors with more challenges than necessary. For one thing, all property under probate's grasp is basically frozen for several months until probate is finished. 

Bank Accounts

When a person passes away, their bank account will become temporarily frozen unless it's a joint account with a living co-owner. The reason for this move is that it allows the funds to be held until the probate court appoints a personal representative (or executor) who is authorized to deal with the estate's financial matters. However, you can appoint those you want to take control of the funds in your account by filling out a form at your bank known as a payable-on-death (POD) designation. This form lists the name or names of those you want to inherit the funds in the account. If you list more than one person's name, the funds are evenly divided. The funds can be distributed to the named beneficiaries as soon as they present a death certificate, and that usually takes only a few days after the death. After the account is emptied, the bank closes the account. Speak to your estate planning lawyer and find out how you can also set up a bank account for the personal representative to use should it be necessary. This designation and the one listed below allow beneficiaries the funds they might need to take care of final expenses and other estate needs.

Brokerage Accounts

You can set up a similar document at your investment brokerage. Here, the document is known as a transfer-on-death (TOD) form because the funds in the account will go into the accounts of the named beneficiaries upon presentation of the death certificate. You can name as many people as you like; it can be divided in several ways. The broker, upon receiving the notice of death, will prepare new accounts for the beneficiaries and the funds will be transferred as indicated on the TOD. The beneficiaries are free to keep the funds in the brokerage account or transfer them to other accounts (or cash them out).

To find out more, speak to an estate lawyer.