Like a trust, these other methods avoid the probate process and protect your assets. The major means of protecting assets is to decrease the value of your taxable estate by arranging for transfer of your assets to your beneficiaries before and/or after your death, thereby reducing the amount of the various taxes levied on your estate.
avoids the probate process, it 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.
Even if you use a will, there are other ways to avoid probate when you pass on many of your financial assets. One way is to use a beneficiary designation form to transfer individual assets to someone after your death, making the asset payable on death.
Common assets that allow a beneficiary to be named include:
Bank accounts or certificate of deposit (CD);
Life insurance policies;
Pension and retirement plans such as 401Ks or IRA accounts; and
U.S. Savings Bonds and other bonds.
Investments such as stocks and other securities can be passed on this way, but are better handled with a transfer on death registration similar to the transfer on death deed.
Other Considerations When Creating a Payable On Death Account.
A Totten Trust is an informal revocable living trust that is actually a type of payable-on-death account created at your bank. They may be called tentative trusts, informal trusts, or revocable bank account trusts. The major goal of the trust is to ensure that your financial assets avoid the probate process.
Property inherited after your death goes through the probate court if it is 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 way to do this, but they can be complicated and expensive to create and manage.
The transfer on death or beneficiary deed is another way to transfer property you own without the probate court being involved.Jointly owned property is handled differently.
A transfer on death registration is similar and allows 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.
Florida and Michigan recognize an Enhanced Life Estate Deed, sometimes referred to as a “Lady Bird Deed,” that performs a similar function.
These methods avoid the probate process by transferring your property directly to a beneficiary after your death. This involves naming beneficiaries on the deed or investment registration. Filling out a transfer on death deed is easy, but certain items and language must be included. Forms are available online.
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. It is not valid if filed after your death.
You can change beneficiaries for the transfer on death deed, modify, revoke, and/or replace it at any time during your lifetime.
After your death, the beneficiary will become the new owner by recording your death certificate with the county where the property is located.
The homestead protection law is designed to protect individual property owners or their families from losing their homestead property during hard times. This law protects your surviving spouse and family from some of the financial consequences of your death.
The federal government and every state (except New Jersey and Pennsylvania) have their own homestead laws. 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.
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. 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 includes the primary residence, 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:
If your surviving spouse moves their primary residence, they must remove the homestead exemption from their former primary residence refile for the exemption in their new area of residence.
The exemption does not prevent:
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, not its assessed value. Equity is the assessed value of the home minus the balance of the mortgage and other financial claims on it.
Homestead exemption amounts.
The homestead property tax exemption 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 exemption is 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, or if you’re disabled or a veteran.
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. If we compare houses 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 $400,000 would be taxed on $350,000 or 88% of the assessed value.
Items of personal property, benefits, and wages can be protected from creditors.
Personal property eligibleto 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.
Many states allow you to choose between the state or federal exemptions, but you must choose one or the other.
From April 1, 2019 to March 31, 2022 the federal personal property exemption amounts are:
Other exemptions they may be entitled to include:
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.