Naming beneficiaries to bank accounts and other assets is a tactic that is commonly used for avoiding probate in California and throughout the United States.
Assigning beneficiaries to accounts can offer a few potential advantages:
♦ Low cost: The process of releasing assets to named beneficiaries is often quick and affordable.
♦ Flexibility: Beneficiary designations also have the advantage of being revocable and amendable. The account holder is free to change his or her mind throughout his or her lifetime.
♦ Asset protection: Beneficiaries and their creditors can make no claims against the accounts prior to death, as the assets remain exclusively the property of the account holder until that time. This is in stark contrast to those who are added as joint account holders, who can make claims against the accounts and expose them to creditor risk.
Many estate plans may benefit from using named beneficiaries as a strategy to keep an estate out of probate. However, it is important for an estate plan to also consider some possible pitfalls that can accompany this approach:
♦ Naming minor children as beneficiaries will greatly complicate and increase costs for an estate, as financial institutions are not permitted to transfer assets to minors. Click here to learn more about the advantages of using a living trust when minor children are heirs to an estate.
♦ Those who have living trusts must be sure to provide the trust with sufficient access to cash so that the trust can cover the costs of administering the estate. Accordingly, it may be prudent to maintain some accounts that do not include heirs as named beneficiaries. Click here to learn more about living trusts.
A proper estate plan will account for your own personal situation, including the ages of your heirs and the circumstances of your beneficiaries. There is no one-size-fits-all estate planning solution that works for everyone.
| Proper estate planning can keep your estate out of probate, saving time, money and headaches for your loved ones. To learn more about estate planning, click here to read our California estate planning FAQ. |
| Estate planning and probate are easier to understand when you learn the terminology. Learn more by clicking here for our glossary. |