Probate is a process that you should learn about when you are planning your estate. If you utilize a simple will to arrange postmortem asset transfers, you would name an executor in the document to act as the administrator after you are gone.
The executor would not be able to act alone without any type of supervision. Under the laws of the state of Ohio, the will must be admitted to probate, and the court will supervise the administration of the estate.
Creditors are given an opportunity to come forward seeking payment before the estate is closed. There is a proving of the will, which means that the court will examine the document to determine its validity. If someone wants to challenge the will, they can make their case during probate.
All the property that is part of the estate will be identified, secured, and inventoried by the executor, and it will be prepared for distribution. At the end of the process, the court will close the estate, and the executor will distribute the assets to the beneficiaries.
Clearly, probate serves a useful purpose in the big picture, but it is less than ideal for the rightful inheritors. They do not receive their bequests until the process has run its course, and it will typically take about nine months.
Probate expenses will reduce the value of the estate, and the records are available to anyone that is interested, so your final affairs are an open book.
Payable on Death Accounts
Now that we have explained why people often try to avoid probate, we can get to the point of this post. When you open an account at a bank or a brokerage, you can name a beneficiary that would inherit the account after your death.
This is called a payable on death or transfer on death account. The beneficiary would not have access to the assets while you are living, so this would not be a source of concern.
You can add multiple beneficiaries if you choose to do so, and multiple people can establish a joint payable on death account. After the death of the primary account holder, the beneficiary will present a copy of the death certificate, and the funds will be released.
The transfer from the institution to the beneficiary would not be subject to probate.
There are 19 states in the union that give you the ability to name a beneficiary when you register your motor vehicle. Ohio is one of these states, so this is another type of payable on death arrangement that is not subject to probate.
If you have an individual retirement account, you will name a beneficiary. When the account is transferred to the beneficiary, the probate court will not be involved.
A Better Alternative
While it is true that payable on death accounts will facilitate probate avoidance, there is a more comprehensive solution. Distributions from a revocable living trust are not subject to the probate process, and these trusts provide other benefits.
You do not lose control of the assets that you convey into the trust, because you would act as the trustee while you are living. After your death, the principal would be protected from the beneficiary’s creditors, and you can dictate the terms of the distributions.
When a simple will is used, the beneficiaries receive lump sum inheritances all at once, so there are no spending safeguards. If you have a living trust, you can instruct the trustee to distribute a certain amount each month or dictate some other type of incremental distribution arrangement.
You can name a disability trustee to administer the trust in the event of your incapacity, and the consolidation of asset ownership streamlines estate administration process.
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