Friday
Jan292010

Titling of Assets to "Avoid Probate"

In order to leave specific amounts of money (or specific assets, such as brokerage accounts, etc.) to named beneficiaries, you may have your bank account(s) and/or your brokerage account(s) titled in one or more of the following manners:

  • "[YOUR NAME] IN TRUST FOR"          ("ITF" ACCOUNT)
  • "[YOUR NAME] AS TRUSTEE FOR"          ("ATF" ACCOUNT)
  • "[YOUR NAME] PAYABLE ON DEATH TO"          ("POD" ACCOUNT)
  • "[YOUR NAME] TRANSFER ON DEATH TO"          ("TOD" ACCOUNT)

You may also use a special designation for minors (under 18 years of age), called the “Uniform Gifts to Minors Act” (or “UGMA”) designation(s). Please discuss this with your broker or bank representative so that the account(s) are properly set up for the minor(s). You will need the minor’s social security number, and the gift must be deemed irrevocable.

Another way to “avoid probate” is to make the beneficiaries joint owners with you. This designation is sometimes “Joint Tenants With Rights of Survivorship” or (“JTWROS”). There are
a number of real dangers associates with this kind of titling. These include (but are not limited to) adverse tax consequences as to appreciated assets (like stocks), possible loss of the assets to the children of predeceased beneficiaries, possible loss of income to the donor (as to “UGMA” accounts), and possible loss of the assets due to creditors’ actions against the other joint tenant(s), to name a few. Accordingly, joint ownership (except as between husband and wife) should not be undertaken unless and until you discuss this form of titling with your accountant or attorney.

Note, too, that tax-deferred investments (such as IRA accounts) should not be titled in “TOD” of “POD” or “ITF” or “ATF” designation(s) as long as your spouse is surviving, as he or she may “roll-over” the tax-deferred investment into his or her name and continue to realize tax-deferred status. Such investments should have designated beneficiaries (primary and contingent) as part of the investment plan. You should consult your tax advisor or attorney as to the precise manner in which such tax-deferred investments are to be titled.