NON-PROBATE TRANSFER METHODS
Revocable Trust
Also known as a “living” trust, a revocable trust can be changed or revoked during the lifetime of the trust creator (the “grantor,” “settlor,” or “trustor”). Such a trust is often used as a Will substitute when the grantor transfers assets into the trust during life or at death through a “pour-over” Will. A revocable trust can make settling a decedent’s estate easier and less expensive than probating a Will and can also provide privacy not available in probate. An irrevocable trust – as the name implies – cannot be changed once it is set up. These trusts are often used in estate planning for wealthy individuals. An irrevocable trust which holds life insurance can provide the funds needed to pay death taxes and other estate settlement expenses while keeping the life insurance proceeds outside of the taxable estate.
Irrevocable Trust
Joint Tenancy
Assets held in joint tenancy pass automatically at the time of death to the surviving joint owner if living. In community property states, community property with right of survivorship has the same result. How ownership of an asset is “titled” can be important.
Life Insurance
Some assets, such as life insurance policies, qualified retirement plans, and IRAs allow the owner to name a “beneficiary.” At death, the policy death benefit or title to the asset automatically passes to the named beneficiary or beneficiaries. In some states, “Transfer-on-Death,” (TOD) and “Pay-on-Death” (POD) allow certain types of property to automatically pass to named beneficiaries upon the death of the owner. However, proper beneficiary designations are essential to make sure the assets pass according to your wishes.
LOWERING YOUR TAXABLE ESTATE If the dollar value of an estate is large enough to be subject to estate and/or inheritance taxes, these taxes can add appreciably to transfer costs.
In 2023, an estate with a net value of $12,920,000 or less is exempt from federal estate tax. This federal estate tax threshold is also known as the “applicable exclusion amount.” However, most states with an estate or inheritance tax have estate tax thresholds which are considerably lower. Thus, an estate which has no federal estate tax liability could easily be subject to state death taxes.
TAXES CAN ADD APPRECIABLY TO TRANSFER COSTS.
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