Q. Is it possible to plan my estate so that my assets go to my beneficiaries without probate or even a trust administration? I have a home, bank and brokerage accounts, an IRA, annuity and life insurance policy. I would like to keep things as simple as possible.
A. Yes, and here is how you might do it:
Your Home: Under a new California law effective this year, you can now transfer your home to your named beneficiaries, effective upon death, using a simple document called a Transfer on Transfer Deed (“TOD Deed”). Upon your demise, your beneficiaries would receive your home without a probate or trust administration. However, while it may sound good, this TOD Deed has some significant downsides. Here are just a few examples:
- Let’s say you use the TOD Deed to transfer your home to your only child, Sam. Sadly, Sam predeceases. What happens? The deed is then void and the home reverts to your estate, requiring a probate.
- The TOD Deed designates your three children as beneficiaries, John, Judy and Elaine. Sadly, John predeceases you, leaving his own two young children surviving. What happens to John’s interest? Instead of going to his children, as you might desire, it all goes to Judy and Elaine. John’s children are left out.
- In the event that you have spent time in a nursing facility subsidized by Medi-Cal, the use of the TOD Deed exposes your home to a Medi-Cal estate recovery claim.
Beneficiary Assets: You can set up bank and brokerage accounts with a built-in beneficiary designation using a “Pay on Death” (“ POD”) or “Transfer on Death” (“TOD”) account designation. You can also designate beneficiaries of your IRA, annuity and life insurance. Upon your demise, they would receive these assets upon the completion of very simple paperwork.
However, many financial custodians do not permit customization of their beneficiary forms in order to address various survivorship scenarios, such as in the examples described above. In short, you may be limited to the custodian’s basic forms, which might not satisfy your wishes.
Another caution: all of these simplified arrangements are designed to deal only with death, but not incapacity. By contrast, a Living Trust creates a vehicle for handling your assets both during incapacity as well as upon death, and to that extent is more versatile.
While creating a Durable Power Of Attorney (“DPOA”) may allow your agent to handle some of your financial affairs during incapacity, your account custodians may be reluctant to honor a change in beneficiary designation if requested by an agent. Further, the DPOA expires upon your death and then becomes unusable.
Bottom line: if you feel virtually certain that your designated beneficiaries will all survive you, if you are not concerned about management of your assets during incapacity, and if you are not concerned about protecting your home or other assets from a Medi-Cal estate recovery claim, then perhaps these simplified procedures may work for you. However, it is suggested that you consider the limitations and downsides seriously before forgoing more traditional estate planning, such as the creation of a Living Trust. In any event, it is suggested that you also create a Last Will, “just in case”.