Planning for Nonprobate Assets

Avoiding probate is important to save money, time, and privacy. However, unintended consequences can result from misunderstandings about who is entitled to nonprobate assets. For example, an ill parent may open a bank account as a co-owner with a child caregiver, not realizing that the child will receive all the money when the parent dies. That child is not obligated to share with siblings, but if he did, the money is considered a taxable gift.

To avoid mishaps like this, make a list of your assets, specifically stating the type of account and how they are titled. Issues to consider include:

• Joint Accounts. Joint tenants with rights of survivorship can access the assets during life, and everything automatically goes to the surviving tenant upon the other’s death. This type of ownership can be risky for people who are not married and can also result in unintended gift tax consequences.
• Co-Owned Real Estate. Some of the same consequences that apply to bank accounts also affect real estate held in the same manner. Further, joint owners must agree before selling the property.
• Assets Payable on Death. When the owner dies, the beneficiary promptly receives the money. However, unlike joint accounts, the beneficiary does not have access to the money until the owner dies.
• Beneficiary Designations. These documents determine who receives assets such as life insurance proceeds and retirement accounts. These forms must be kept up to date to prevent an ex-spouse from receiving benefits rather than a current spouse.

See Deborah L. Jacobs, Efforts to Avoid Probate Can Carry Their Own Risks, N.Y. Times, Feb. 9, 2011.