Non Probate Transfers | Trust Attorney Las Vegas

Hello and welcome to trusted the Trust Attorney Las Vegas podcast where we talk about all things that involve trusting others, especially attorneys. I’m your host, Blake Johnson. I am an attorney entrepreneur and I focus primarily my practice on a state planning business setup and business succession planning. Today we will be discussing ways to avoid probate other than trust, specifically smallest states affidavit as sometimes referred to his affidavit is of entitlement, a beneficiary designations on things like life insurance, retirement accounts or your investment accounts payable on death or transfer on death accounts. And uh, if we have time we’ll go into joint tenancy. Now, ideally if you want to use any of these options you did so as part of a plan, a trust can be the best option but not always. So you need to consider the things like cost, the tax consequences, um, distributions, uh, disinheritance of children or others, uh, et cetera.

So that’s all part of doing your estate planning. The problem is is most people don’t know how, uh, these types of non probate transfers, uh, operate in. It’s definitely not part of a plan. It’s just the default that happens when they set up these accounts and they don’t realize how it fits into their total estate plan. So, um, they’re golden. This isn’t necessarily met as Napoleon Hill said, you need to plan your work and work your plan. Now let’s start with a affidavits of entitlement. Like I said, that’s also referred to as an affidavit of smallest states. It just depends on what state you’re in, what they call it. Um, but most states if not all have a, a minimum of an estate value that you have to have before you’re a state goes through probate court. So this one is kind of, um, you know, the default, you know, here in Nevada that that a minimum amount is $25,000, but with a little caveat that says if it’s real property, meaning a house, land, commercial building, something like that, um, that automatically has to go through probate no matter what the value is.

But then cash and, uh, vehicles and that kind of stuff. If it’s total estate value is over 25,000. And then we do have to go through probate. Um, Nevada is definitely on the lower side. Um, you know, I’ve seen 50,000, I think in Wisconsin. Uh, Utah’s is 100,000. California is 150,000 before we have to do probate. So each state is different, so you need to take a look at it. Um, and what it does is the meaning, the main reason that states have done this is it’s to help alleviate some of the, the expense and cost that the court has to do to go through probate. Because if it’s so small, the time that they spend handling that just doesn’t make it worth it. And so they say, all right, with this minimum amount, um, you know, whoever the air is. So if it’s a spouse and everything’s supposed to go to the spouse, um, then they signed this affidavit.

They basically are signing under penalty of perjury that they are the rightful heir of the estate. That, um, you know, they’ve met all the requirements for the affidavit entitlement to be valid and that they are supposed to get the estate that it’s under the $25,000 or whatever it is for your state. They stock cement, it must be notarized. Um, and all heirs must sign. So if it’s, you know, mom’s already dead and then dad dies. And so there’s three siblings, all three siblings would have to sign that affidavit saying, yes, we are the three years and they would make the checks out to the three kids. Um, this does, um, circumvent probate, but it does not circumvent a will because if you have a will, you put that in the Trust Attorney Las Vegas affidavit and you say that the will names these people as the heirs, uh, and then you usually attach it to the affidavit.

So circumvents probate, kind of a, it’s the alternative. You can’t go through probate if it’s under that amount usually. Um, but it does not circumvent your will. So that’s affidavit of entitlement. The next one is beneficiary designations. Um, you know, such as life insurance or an investment account that you have or I can annuity, uh, you name a beneficiary, uh, when you die, who would supposed to go to? Uh, typically, you know, it’s a spouse or your kids, but it doesn’t have to be, you can name any person that you want on there. Now, just a little side note, anything that is received through inheritance is not taxed. Okay. Um, with one exception, that’s retirement accounts, but life insurance proceeds, uh, investment accounts that are transferred, houses, cars, bank accounts, all that, those flow through to the heirs without any tax due. Now, there may be a state tax, but there’s no tax due to the heirs unless you live in a state with an inheritance tax.

But federally there is no inheritance tax. Uh, and here in Nevada and in Utah, there are, there is no inheritance tax. Now let’s get back to naming a beneficiary on your account. So let’s say you have a life insurance policy and um, you know, you want to name have been a couple beneficiaries. You can name either just one person, you can name a couple of people and it would just be divided amongst those people. Or you can do what’s called your primary beneficiary. So the first choice, and if they’re not around, then you have your, your secondary choice, which is called a contingent beneficiary. And you can name as many contingent beneficiaries as the, the form will allow you to fill out. Um, now this does circumvent probate because the company’s going to pay it out to whoever you named in that document as your beneficiary.

And the other problem is it does also circumvent your will because even if you’re willing to something different, but your policy says, I want this, this policy to go to this person, they’re going to pay it out to that person. Um, now it may not circumvent probate. If you don’t name anybody or if you only named one beneficiary in that purse, that beneficiary is dead. Then it has to go through probate, say to go to the proper people in your estate. So it may, but it doesn’t always guarantee that you’re going to avoid probate by doing it that way. Um, it’s, it can also disinherit kids or uh, or grandkids. So let’s say, you know, you just named one of your kids cause they were the only ones born at the time that you got the policy and you never update that beneficiary and you have more kids.

Well guess what, that one kid is going to get all the money unless you change that form so you can disinherit them. Or in the situation where, let’s say you have three kids, one of your kids dies and that deceased child had two kids of their own. Uh, if we don’t, if it doesn’t allow for you to say that, you know, if that one child dies in his kids step up, typically what happens is instead of money going to the grandkids for their share of their dad’s or mom’s estate, it’s just going to go 50, 50 amongst the two surviving children. So it disinherits your grandkids. So not an ideal situation either. Um, you know, in on the flip side, this can be, you know, a life insurance policy beneficiary can be good if you know, you don’t want your spouse or someone else to know or you want to pass something outside of what your trust says.

This is a way to do it without having to, you know, talk about it with somebody else. If it’s your policy, you set it up, you bought it, you’re paying the premium, then you can name the beneficiary and you don’t have to tell anybody else you know, who the beneficiary is or anything like that. Now the next one is retirement accounts. Like I said, um, you know, before retirement accounts, there is no tax on inheriting the money. Um, but when you take the money out, there are tax consequences because taxes have not been paid on those accounts. If it’s a regular IRA or a 401k or a four o three B or whatever account that you have, uh, you contrast that to life insurance. It’s paid out to the beneficiary. They can take the full amount of the amount of the money out. It’s an investment account.

They can take, they can sell all of the investments and take it out. There’s no tax consequences unless there’s a gain with retirement accounts. Anytime you take it out, they have to pay the tax that’s due on there. That’s just what a retirement account is. You Post, you did not pay the tax when it was put into the account and so the federal government’s going to want to get their share at some point. And that’s why those restrictions on there. Now, retirement accounts are tricky, uh, as far as naming a beneficiary. Now typically if you’re married, you want to name your spouse because that’s the most tax advantaged way to dish to give your money upon your death. Because if it goes to a spouse, they have a couple of options. They have the most flexibility. So one, they can roll the money into their own IRA and then it’s just continues on, like as if it was their own money.

So, you know, the regular rules of they have to be over 59 and a half before they can withdraw without getting a 10% penalty. Um, and, but they also don’t have to take the required minimum distributions until they’re 70 and a half. They also have the option to treat it like an inherited IRA. And what an inherited IRA says is that, um, that they had it, this is how it would be if it, if it was a non spouse. Um, so they have to take, they can either take the required minimum distributions over their lifetime starting the year after the person died. They can either take it out all the money out over a five year period or they can withdraw all of it immediately. Now there is no tax or a 10% penalty on that if you get it as a, um, inherited IRA. So let’s say it’s a spouse instead of, and they’re under 59 and a half and they need the money that’s in that Ira to continue to live.

Well, they don’t want to roll it into an IRA into their IRA because then they’re going to get penalized if they take that money out before they turn 59 and a half. If they do it in to an inherited IRA, they can take it out over their lifetime where they can do the, do it over five years and they still have to pay the tax on it, but they don’t have that 10% penalty. So this is one where you definitely want to talk with your financial advisor and your attorney to make sure everybody’s on the same page as far as how to do, um, the beneficiary designation on that retirement account because it is very tricky. The tax consequences could be significant. Um, and then even after that, when you inherit an IRA, you want to talk to those, that attorney in your financial advisor to make sure you’re making the best decision as far as your options go.

Um, to minimize the tax effect that you have now, just like life insurance beneficiary or an investment account beneficiary, you could disinherit a, your kids or your grandkids if you don’t set it up correctly. Um, it could also, um, circumvent probate because it’s just going to pay out to the beneficiary. And, um, it’s also going to circumvent your will. Now, once again, if you don’t even beneficiary or the beneficiary named dies, we still have to go through probate to get those retirement accounts to the right people. So it’s even more of a mess. So very, very important that you take the time to know who your beneficiaries are. You want to review those frequently to make sure they’re up to date. Um, you know, anytime you have a, uh, a new child or you, you, you get married or divorced or have one of those significant life events, call your advisor, double check.

Make sure you have the right people listed on there so that, um, you know, it goes to the right people. You don’t want the situation where maybe you had a spouse named as a beneficiary, you guys get divorced in part, the divorce decree never says that. You know, that’s supposed to be changed and you never change the beneficiary. Well, guess what? That life insurance money is going to your ex spouse, not to your kids or not to your new spouse. That’s not a fun situation right there. They’re going to be pretty upset about that. So there are ways around it. It’s kind of difficult. There’s a lot of court we have to do to make that happen and it’s not a guarantee. So frequently review those named beneficiaries, um, on your, on your accounts to make sure you have the right people listed and it’s going to distribute the way that you actually want and talk with your attorney, talk with your financial advisor, make sure everybody’s on the same page as far as making sure the plan is in effect.

You know, like I said before, we’ve got to work that plan. Like Napoleon hill quote said, uh, the last type of account I think we’re gonna have time for today is a pod pay on death account, sometimes referred to as a tod transfer on death account. Just depends on how the bank or institution has it. Um, but basically this is you typically with the bank account or sometimes with investment accounts and just says that upon my death, transfer everything to this person or these people. So just acts similar, very similar to um, you know, a beneficiary designation on a life insurance policy. You just named the people that you want to have the money to go to. Um, but once again, you have the consequences of um, you know, circumventing the will, you have the consequence of um, you know, possibly disinheriting your kids or grandkids.

And so, you know, make sure it’s part of a plan that you have the right plan in place to make sure that it does take effect. So most likely the best way to do this would be to pay on death to your trust and then your trust will distribute it the right way. Um, but not necessarily, like I said, if, if we have, let’s say, you know, the majority of a trust account or the trust is going to um, you know, kids, um, but dad had gotten remarried and he wants to leave something to his spouse, he can use that one account to leave it to spouse. And then if she’s not there, the backup is the trust. So there are creative ways to use it. Um, it is, it is possible to use it. I don’t want to say they’re bad. Yeah. But we definitely want to make sure if we are using any of these, um, non trust transfers that we are doing it the correct way.

So that’s why it’s important. Um, you know, the other part is along with updating is making sure that your information with that company is up to date. One of the biggest problems that we have is not being able to know which accounts, um, you know, our clients have so they don’t update or have a way a list for their kids to know what assets they had. They didn’t know that there was a life insurance policy or that there was an investment account. So if the life insurance company or a bank or any other company has money that’s owed to you and they cannot locate you, they are required after a certain number of years to give it to the state’s unclaimed property division. Now, throughout the country, there are billions of dollars in unclaimed property right now. Billions with a B. A New York state alone has over $14 billion that needs to be paid out.

They just can’t locate the people. Um, or typically what happens is, you know, it’s supposed to go to somebody but they’ve died and they don’t know who the heirs are. So they it over to the state. Don’t let that be you. Now there is a way to get that property you have to file with the state show that you know, the, you know, you are the person who that monies owed to or if it’s, you know, they’ve died that you’re the air. So you have to prove that you’re the air. Sometimes you have to open the court proceedings for probate, show that to, to them along with a whole other list of things, you know, show that your birth certificate show that you’re, you’re actually related to them, your id, your social security number and all that stuff. So it can be a pain, but it is Trust Attorney Las Vegas possible.

But better way is always have a list of your current assets. You know, everything that you have, all bank accounts, all life insurance policies, um, all investment accounts, um, any, any vehicles and the land and property. You want to keep a current list and update it yearly to make sure that your kids can go find, um, or your, whoever your name is, your heirs can go find where that property is and make sure it goes to the right people. And it doesn’t just sit there and becomes unused. So I think that’s enough for today. So we’ll, we’ll call it, call it there. That is some non probate ways to transfer assets, things that don’t have to go through the court. Uh, you know, we talked about affidavit of entitlement, beneficiary designations on life insurance, investment accounts and retirement accounts, and then payable on death or transfer on death accounts. Uh, hope you enjoyed it and got something out of it and we’ll talk to you next time.