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Other Methods to Preserve Your Estate

Updated: February 16, 2024.

Property and assets inherited after your death goes through the probate court if they are included in your will or if you die without one. Avoiding the probate process will save time and money on legal and court fees. There are many ways to do this.

Trusts are one of them, but they can be complicated and expensive to create and manage. In practical terms, using a trust to transfer assets makes the most sense for the very rich or those who live in a state with a low estate tax threshold. Although a trust avoids the probate process, protects assets from creditors, and allows you to control how your estate is used by your beneficiaries, this is usually not reason enough for most people to justify the cost of creating a formal trust.

Although it involves the probate process, a will is still the better choice for the majority of people. It is less complicated, better recognized, and costs less than creating a formal trust for your assets. When you use a will, you can also use the methods in this section to avoid probate when you pass on many of your financial assets without the cost and complexity of a trust.

  • These other methods are much easier and less expensive, some being free to do. Like a trust, these other methods avoid the probate process and protect your assets.
  • They are usually not necessary for assets that are jointly owned with the right of survivorship, especially since the joint ownership agreements supersede trusts, wills, and transfer on death agreements. Although they could be a safeguard if all of the owners die at the same time.

These documents must have specific legal language and comply with your state’s estate and homestead laws. When naming beneficiaries be sure to identify them by name, not their relationship to you.

Payable/Transfer on Death Accounts

Payable or transfer on death accounts are a means for you and any co-owners to directly name one or more beneficiaries without using your will by filling out paperwork from the institution containing the asset. Since the accounts are between you and the institution, they not part of the public record.

If you have multiple beneficiaries, you can determine the amount or percentage each beneficiary receives. One way is to use a beneficiary designation form to transfer individual assets to someone after your death.

  • They are available in all states, but individual laws will vary.
  • Most financial assets or accounts that allow you to name a beneficiary will offer this when they are acquired or created. However, this can be done at any time as long as you are not incapacitated or otherwise unable to freely make these decisions.
  • The forms authorize the institution to transfer the assets or pay out their value directly to your designated beneficiary after your death, or the beneficiary named by the last surviving partner.

Common assets that allow a beneficiary to be named include:

Investments such as stocks and other securities can be passed on this way, but are better handled with a transfer on death registration described below.

Other Considerations When Creating a Payable On Death Account.

  1. With a payable on death account you can change or add beneficiaries at any time.
    • The beneficiary designation in the account overrides any conflicting beneficiary designation in your will, trust, or any other legal document designating one. This is not true if the account is jointly owned with the right of survivorship which overrides all other designations. 
    • Your designated beneficiary has no power to manage or access these accounts while you are alive.
    • Adding beneficiaries will ensure that the assets are quickly dispersed at your death, which will save time and money. However, it won’t be quick enough to pay bills due soon after your death such as funeral/burial expenses or outstanding debts.
    • It is best not to name minor children as beneficiaries.
      • Financial institutions don’t release money to minors and the process of getting the assets to them is complicated and expensive.
      • It will usually require a court order, even if they have a living parent.
      • The court will require proof that a parent or legal guardian will hold the money for them.
    •  Charitable organizations can be beneficiaries.
    •  If you are married, some of these accounts are already partially or jointly owned by your spouse, especially in community property states. Unless they sign off on the beneficiary designation, they may be entitled to half of the account.
  1. You can request payable on death forms that your brokerage company, bank, or other institution can provide. The forms are usually free of charge.
  2. By designating beneficiaries, you can increase the amount of your money that is insured in a given institution under FDIC rules.
    • Generally, the FDIC insures each person’s total accounts in each bank up to $250,000.
    • By adding an additional account with a beneficiary at that bank, you can double this amount.
  1. You can name an alternate beneficiary in case a beneficiary dies before you can name a new one. It’s more complicated if a named beneficiary dies after you but before they access the funds.
    • An alternate beneficiary is the best way to avoid complicating matters if you have a single beneficiary. Probate court will become involved if you don’t.
    • If you had multiple beneficiaries, the amount would be split evenly among them despite what provisions you had previously made for this. To avoid this, you can name alternate beneficiaries for each or specify the split that would happen if one or more of them dies.
  1. You are at no risk from your beneficiary’s creditors. However, your beneficiaries will not be protected from your creditors if you don’t leave enough assets to pay claims and debts.
  2. When your beneficiaries claim funds from the assets, they must provide evidence of your death (a certified copy of the death certificate) and proof of their identity.
  3. Pay on death accounts are not really necessary or appropriate if you are going to create a formal trust since a trust also avoids the probate process.

Transfer on Death Registration

A Transfer on Death Registration is similar to Payable on Death Accounts and Transfer on Death Deeds. It is the most effective way for you to transfer investments such as stocks and other securities.

Transfer on death registrations are recognized in most states. The beneficiaries must contact the transferring agent and re-register the investment in their name by sending a copy of the death certificate and an application for re-registration with the account number.

Totten Trust 

A Totten Trust is an informal revocable living trust that is actually a type of payable-on-death account created at your bank for your accounts there. They may be called tentative trusts, informal trusts, or revocable bank account trusts and are recognized in most states. In states not acknowledging them, the funds in the trust would be added to your estate, pass through probate, and be distributed to your heirs according to your will or according to your state’s intestate rules. Estate taxes will be assessed where applicable.

The major goal of the trust is to ensure that your financial assets avoid the probate process.

  • It can be a formal trust established by naming a beneficiary in the title on the account using language such as “In Trust For,” “Payable on Death To” or “As Trustee For.”
  • It can be funded with financial assets but physical property cannot be included.
    • There is no limit to how much can be added.
    • Unlike the other transfer on death methods in this section, the assets are no longer considered part of your estate if you are not the trustee, but are subject to income and capital gains tax and are available to creditors.
  •  This trust is created while you are alive and can be altered or revoked at any time before your death. You will usually name yourself as the trustee.
  •  You will be allowed to manage and use the trust/account as you want.
  • If you are the trustee, you are the owner of the trust and the assets will be considered part of your estate for estate tax purposes after your death.
  • Unlike most other trusts, a Totten does not allow you put limits on how the funds are used after your death.
  • The beneficiary does not need to contact any executor, merely provide a certified copy of your death certificate and proof of their identity.
  • At your death, the funds will be subject to inheritance taxes.

Transfer on Death Deeds

The transfer on death or beneficiary deed is another way to transfer real estate, possessions, and other property you own by yourself without the probate court being involved, unless your beneficiary dies before you and there is no contingent/backup beneficiary. Jointly owned property with the right of survivorship is handled differently.

Although these methods avoid the probate process by transferring your property directly to an adult beneficiary after your death, a transfer on death or beneficiary deed must be filed with the land/property records (or similar) office in the county where your property is located and therefore part of the public record.

Filling out a transfer on death deed is easy and involves naming beneficiaries on the deed/title. However, certain items and language must be included. Forms are available online.

  • Each asset will need its own document with named beneficiaries.
  • Most states require that the deed include the same information as a regular deed. This includes your name as the owner of the property and a valid legal description of the property to be transferred.
  • It must be stated explicitly that the transfer will only occur at your death.
  • You can name one or more beneficiaries for each asset. When selecting more than one beneficiary, check your state’s rules; some do not allow uneven splitting of a property.
  • It’s important to  add new beneficiaries for births or adoptions and to name successor beneficiaries in case your primary beneficiaries die before they can claim the asset, refuse to accept the property, or are not available for other reasons.
  • Some states do not allow entities or organizations to be named as beneficiaries.

The transfer on death deed is valid once it is signed and recorded in the public land records office in the county where the property is located.

  • Most states require you to have it notarized, but there is some variation.
  • The deed is not effective while you are alive. You retain full power over the property, including the right to mortgage or sell it. Assets are protected from your beneficiary’s creditors.
  • A beneficiary’s signature is usually not needed.
  • It is not valid if filed after your death.

Once the deed is valid, the beneficiary designation overrides any conflicting beneficiary designation in your will, trust, or any other legal document designating one. However, shared ownership rights overrides any conflicting beneficiary designations in your transfer on death deed. 

You can change beneficiaries for the transfer on death deed, modify, revoke, and/or replace it at any time during your lifetime.

  • If you want to modify an existing transfer on death deed, it may be better to create a new one. The process is the same as creating the original with the addition of language that explicitly revokes any previously recorded transfers on death related to the same property.
  • To revoke a transfer on death deed you can create a revocation document. The process of creating a revocation document involves requesting a revocation form from the county recording office, filling it out, signing it, and recording the deed was revoked.

After your death, the beneficiary will become the new owner by filing your death certificate with the county where the property is located.

  • Any property transferred to your beneficiary includes the financial obligations that come with it, such as any outstanding mortgage, unpaid taxes, or liens/debts.
  • You are not giving the property away during your lifetime, meaning that gift taxes don’t apply but the property is still part of your estate when estate taxes are assessed.
  • The validity of the deed can be challenged after your death, usually by questioning your capacity to create a valid deed. Most states give families a certain amount of time to challenge the title. Beneficiaries usually cannot sell the property until this time has passed.
  • Consider adding a notarized testimony that you are of sound mind and are not creating the deed under duress or undue influence. 

Homestead Protection

The homestead protection law is designed to protect qualified individual property owners or their families from losing their homestead property to creditors during hard times, such as your death.

  • The laws work through equity protection, property tax reductions, and financial exemptions for certain possessions.
  • Your beneficiaries may qualify for a federal homestead exemption if they now have a low income and they are at least 65 years old, they have a permanent and total disability, or you or they are a veteran.
  • The federal government and every state have their own homestead laws and exemptions.

Homestead protection laws vary significantly from state to state. Some states have differences between counties, like Florida, while others can vary by territory. There is significant variation among states in how the exemption is applied and how much is protected from creditors.

  • In most states with an age limit those 65 years old and older qualify, while a few states have slightly lower age limits (60-62 years old).
  • Many states have other criteria that will qualify your family, such as having a low income alone, being a first responder, having dependent children (head of household), being a victim of a natural disaster, or just being a surviving spouse.
  • The homestead exemption happens automatically in some states, while in others your surviving family has to register eligible property as a “homestead”  with your state’s local tax authority and either in person or using the website. To do this they may need a driver’s license, vehicle registration, voter registration, Social Security number, recorded deed, and tax returns.
  • Thirty states require families to use the state limits, while Alaska, Arkansas, Connecticut, District of Columbia, Hawaii, Kentucky, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New Mexico, New York, Oregon, Pennsylvania, Rhode Island, Texas, Vermont, Washington, and Wisconsin allow either the federal or applicable state limit to be used, whichever offers more protections. However, the state limits are usually higher.

Equity Protection

The primary purpose of equity protection is to assure that your surviving family has both physical shelter and financial protection. These laws can prevent them from needing to sell the residence by allowing a portion of it to be claimed, making that portion of estate off-limits to unsecured creditors — those who make loans without requiring collateral. Protected properties include farms, houses, condos, co-ops, mobile homes, and burial plots. Any unused portion of the homestead exemption can be used for other property.

The equity protection only includes the primary residence or personal property used as a residence (such as a residential trailer), the land it sits on, and any out-buildings or annexes. This does not apply to other property you own even if they are residences, since the law only entitles the owners to one primary residence. For example:

  • Your second home, vacation condo, or other property are not included; or
  • If you own a condo and live in one unit and rent out the other units, you can only claim the unit you live in. 

If your surviving spouse moves their primary residence, they must remove the homestead exemption from their former primary residence and refile for the exemption in their new area of residence. 

The exemption does not prevent:

  • The need to pay any owed taxes;
  • Your bank from foreclosing if the mortgage has defaulted; and/or 
  • Secured creditors with liens on your house or who accepted your home as collateral from forcing the sale of the home to pay debts owed them.

Protection limits for your primary residence only apply to the equity you have in your home at the time of your death.

  • Equity is the assessed value of the home minus the balance of the mortgage and other financial claims on it.
  • If the equity in the home is less than the exemption limit in your state, your family can’t be forced to sell the home to pay creditors.
  • If the equity exceeds the limits, creditors may force them to sell the home, although your family will keep the amount of the proceeds left after paying the debts and other costs.

Homestead exemption amounts.

There may be acreage limits to the size of the property that can be protected. Exclusions for agricultural land are usually higher.

Property Tax Exemption

The homestead property tax exemption only applies to your primary residence. It allows your surviving spouse to exempt a part of the property’s assessed value, essentially reducing the value of the property used to calculate property/homestead tax. These exemptions can help your surviving spouse and family to stay in the home after their income has been reduced by your death.

The homestead property tax and bankruptcy exemptions vary by state and are based on the value of the home. It is available in some states and may provide ongoing reductions in property taxes. In some states every homeowner gets the tax exemption while eligibility in other states depends on income level, property value, age, if you’re disabled or a veteran, or head of household status.

A homestead tax or property tax exemption is usually based on the local government tax assessor’s office determined value of the home.

The exemption can be a percentage of the property’s value, but is usually a fixed tax deferment.

A fixed exemption makes the reduction in property tax progressive, being more significant to those with less expensive homes.

The calculation of the exemption involves subtracting your state’s exemption from the value of the home before calculating the estate. For example, if the home is assessed at $250,000 and your property tax rate is 1%, the property tax bill would be $2,500. But if you were eligible for a homestead tax exemption of $50,000, the taxable value of your home would drop to $200,000, meaning your tax bill would drop by 20% to $2,000.

If we compare houses using the above calculation where the first $50,000 of the assessed value is exempt from property taxes, when the value of the house increases:

  • A home valued at $50,000 or less would have no property tax;
  • A home valued at $75,000 would be taxed on $25,000 or 33% of the assessed value;
  • A home valued at $100,000 would be taxed on $50,000 or 50% of the assessed value;
  • A home valued at $200,000 would be taxed on $150,000 or 75% of the assessed value;
  • A home valued at $250,000 would be taxed on $200,000 or 80% of the assessed value; and
  • A home valued at $400,000 would be taxed on $350,000 or 88% of the assessed value.

Other Property Exemptions

Items of personal property, benefits, and wages can be protected from creditors. 

Personal property eligible to be exempt include (check your state law for specifics): household furniture and appliances, tools of the trade (such as a building contractor’s pickup truck and power tools), family photos, clothing, musical instruments, burial plots, and/or water rights.

Although these exemptions are available to your surviving spouse and dependent family, these items are covered under the federal and state-specific bankruptcy laws.

Many states allow you to choose between the state or federal exemptions, but you must choose one or the other.

The current federal personal property exemption amounts are:
  • $4,450 for your motor vehicle;
  • $1,875 for jewelry;
  • $700 per individual item with a $14,875 aggregate value on household goods, furnishings, appliances, clothes, books, animals, crops, and musical instruments;
  • $2,800 for tools of the trade, including implements and books
  • health aids;
  • $14,875 in loan value, accrued dividends, and/or interest in a life insurance policy; and 
  • $1,475 plus $13,950 of any unused portion of your homestead exemption as a wildcard exemption
    • This allows you to apply some or all of this exemption to an item that belongs in another category or doesn’t have a category at all.
    • For example, if you have tools worth $4,275 you can only exempt $2,800 of their value using the federal exemption for tools. However, you could exempt the remaining $1,475 of their value using the federal wildcard exemption.
  • A portion of their wages (the percentage of your surviving spouse’s wages that can be protected varies by state);
  • Tax exempt retirement accounts and IRAS and Roth IRAs to $1,362,800;
  • Social Security benefits;
  • Civil Service benefits; 
  • Veterans Benefits;
  • Public assistance;
  • Disability, unemployment, or illness benefits;
  • Crime victim’s compensation;
  • Settlement for a wrongful death lawsuit and life insurance payments for a person you depended upon;
  • Personal injury recovery up to $27,9000 except for pain and suffering and/or for monetary loss;
  • Lost earnings payments;
  • Unmatured life insurance policy except for credit insurance; and
  • Life insurance policy with loan value up to $13,400.

Other non-bankruptcy exemptions mostly apply to government and military personnel benefits, with others for workers in regulated labor markets such as railroad workers, merchant sailors, and longshoremen.

Resources 

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