Many people create estate plans without considering that their assets will disburse through probate court. This process can prove lengthy, contentious and costly. And you may wonder if your assets can avoid it. If you have a revocable living trust, for instance, your assets will bypass probate altogether. If you don’t, some still can, though it’s important to understand how and why.
Accounts with beneficiary designations
Some financial assets – like retirement plans, life insurance and annuities – are payable on death. This designation allows you to declare a beneficiary to these assets, thus bypassing probate. To make this designation, you must fill out a form with the provider of the account or policy. This form indicates who you want its assets to go to. These accounts then transfer to their named beneficiary upon your passing.
The exception to this rule is if the beneficiary passes before you. In this case, the account will go through probate if you do not name another beneficiary in their place.
Assets with joint ownership
When purchasing assets or creating accounts, you may consider co-owning them with a spouse, child or relative. This relationship constitutes joint tenancy with rights of survivorship (JTWROS). And it indicates that you have designated the property to the surviving owner upon your passing. JTWROS arrangements often apply to residential property. But businesses, bank accounts and investment portfolios can also transfer in this manner.
A common mistake is assuming JTWROS arrangements are automatic. They only happen if you and the other owner title yourselves as joint tenants with rights of survivorship. If you do not use this language to make your intent, you will hold the property as tenants in common. This arrangement does not invoke survivorship. And the court then considers these assets part of your larger estate and eligible for probate.
Transfer on death instruments
Illinois is among the states that allow real estate owners to transfer their holdings outside of probate. This process occurs through transfer on death instruments (TODI), which you will fill out through your local circuit court. Unlike JTWROS arrangements, TODI is for real estate only. And your beneficiary must file an affidavit through the court within two years of your passing. This statement attests to your death and indicates their acceptance of ownership of your real estate.
Avoiding probate can help you leave your assets intact. By considering alternative methods of transfer, you will save your beneficiaries time and money down the road. An attorney with estate planning experience can help you work through these arrangements.