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Non-Probate Transfers

transferring-property-without-probate

When someone passes on and only leaves a will behind (or fails to even do that), probate is the process through which the court system supervises the distribution of the deceased’s property to their beneficiaries and debtors. Probate can be a very costly and time-consuming process, which is why it usually advisable to avoid it whenever possible.

One of the most well-known and commonly used means of non-probate property transfers is the use of a living trust. However, there are a number of other, less well-known legal means of accomplishing non-probate transfers. Here is a rundown on just a few of these probate alternatives.

Joint Tenancy

In a joint tenancy, more than one person is listed as the owner of a property, with each owner having an equal share. In a situation where the owners wish to avoid probate, each tenant indicates on the property deed that the other tenants have rights of survivorship. This means that if a tenant dies, that person’s share is divided equally among the other surviving tenants (if there’s just one other tenant, then they become the sole owner), without having to go through probate.

However, there are some shortcomings to joint tenancy:

  • If the joint tenants all die at the same time, then the property will pass into probate.
  • Joint tenants cannot list their share in a will. However, while a tenant is alive, they can transfer that share to someone else as a tenant in common, meaning they have the right to later transfer ownership either while alive, or in a will.
  • If a joint tenant becomes incapacitated, the other tenants will be unable to mortgage or sell the property, without the incapacitated tenant being represented by a conservator or someone else with the necessary power of attorney.
  • Lastly, if one tenant invests more capital into a property than the other tenants, then the financial contributor may be liable for a gift tax penalty.

POD (Payable-On-Death) Accounts

Typically, when you maintain financial accounts such as savings, checking, CDs, securities, you can obtain a form from the relevant financial institution on which you can name a beneficiary. While you are alive, the beneficiary has no right or access to the accounts, which allows you to continue to use it as you please. It is only when you die that that the accounts are transferred, without having to pass through probate.

The only potential shortcoming is that the account may be frozen if there is an estate tax which needs to be paid.

TOD (Transfer-On-Death) for Securities and Physical Property

TOD is essentially POD for stocks and bonds. The institution through which you maintain your stocks, bonds, and other securities can provide you with a form on which you indicate a desired beneficiary in the case of your death.

In 2016, California law will allow for TOD real estate deeds as well. The property owner signs, dates, and notarizes the deed, indicating who they wish to be the beneficiary. Then within 60 days, the TOD deed must be recorded with the county in which the property is located. The property owner can revoke the TOD deed while they are still alive by registering a revocation with the county office, registering another TOD deed which overwrites the old one, or by selling or transferring the property.

A similar process is currently available for motor vehicles as well. The California DMV offers registration forms on which a vehicle owner can name a desired beneficiary for the car, in case the original owner dies.