In simple terms, probate is when a court has to step-in after a person dies to determine who are the rightful owners of that person’s assets because there was no estate plan in place to identify successors. Of course the probate courts and lawyers don’t work for free, so if you don’t want your hard earned money to get frittered away, then take the appropriate measures to avoid probate. Short of setting up a trust, here are some simple steps you can take now to avoid probate; however, if you have meaningful assets, a family, or are married, then it would behoove you to seek a professional to create a more formalized estate plan.

Designation beneficiaries

One of the simplest and quickest ways to avoid probate is to designate beneficiaries on your retirement accounts and life insurance. Accounts such as IRA (Individual Retirement Accounts), 401ks, 403bs, and other tax advantaged accounts allow you to create one or more beneficiaries. Always make sure you retirement account beneficiaries are updated, especially after a divorce or another similar change in life circumstance. It is also important to understand that there are two ways to designate beneficiaries: per capita and per stirpes. What is the difference between per capita and per stirpes? Per capita means that each beneficiary receives an equal share of the distribution whereas per stirpes means upon the death of a beneficiary, that beneficiary’s heirs will be entitled to his/her equal share.    

Consider Transfer on Death (TOD)

A transfer on death designation, also known as a TOD, can also be another easy way to avoid probate. Similar to a retirement account, a TOD designates a beneficiary or beneficiaries for a non-retirement account such as a stock brokerage and/or bank savings or checking account. Upon the passing of the account owner, the beneficiary inherits the account outright. TODs are very easy to set up and are revocable so you can change your beneficiary at any time. 

Hold assets jointly

There are several ways to hold assets jointly and contrary to popular belief, you do not have to be married. Some titling ownership options include: held as joint tenants with rights of survivorship (JTWROS), tenants by entirety, tenants in common, community property with rights of survivorship, etc. Holding assets jointly is another great way to avoid probate, but it could also expose you to other potential issues, especially cost basis and taxation. You should consult with your CPA and estate attorney first before utilizing any of these options.  

Create a trust

The best way to avoid probate is to create a trust based on your circumstances and your objectives. A trust will grant you the most flexibility in distributing your assets upon death. Do you want to disown a child, have all your children inherit money once they reach a certain age, or have all of your assets go to care for your pets (this is actually very common)? You can do all of those with a trust

Taxes and estate planning are very complicated. One minor mistake and it could cost you and/or your heirs dearly. While it is tempting to use LegalZoom or other similar do it yourself platforms, we highly recommend you engage a qualified CPA and a trusts and estate attorney (not your cousin who specializes in personal injury) to establish an estate plan. ACap is a CPA firm and we also have contacts with excellent trusts and estate attorneys. Contact us for a free initial consultation or if you want a referral to an estate attorney.

Looking for an independent fiduciary financial advisor who can advise you on investments, retirement, real estate, alternative assets, and taxes? Contact ACap Advisors & Accountants to schedule a free initial consultation. Our clients include individuals, small businesses, entrepreneurs, and anyone serious about saving and investing for their future.

Ara Oghoorian, CFA, CFP, CPA is the founder and president of ACap Advisors & Accountants in Los Angeles, CA.