How to Avoid Probate on Your Bank Accounts

Probate is a legal process that verifies the validity of a deceased person’s will. This involves addressing debts and distributing remaining assets. If you die without a will or a living trust, probate can substantially influence the transfer of your assets. However, there are some things you can do now to help avoid the probate process later. This is what you need to know about how to avoid probate on your bank accounts and other assets.

If you want to protect your assets for your heirs, a financial advisor can walk you through different estate planning options.

How Probate Works

Probate is the legal process for the validation of a deceased person’s will. Debts and taxes are paid off, and any remaining assets are then distributed, according to the will’s instructions.

However, the probate process can be costly and also take a while. After the will is validated, an executor will be appointed. This is an individual who is responsible for managing the deceased’s estate, including the payment of debts and the distribution of remaining assets among the beneficiaries.

Do Bank Accounts Go Through Probate?

Bank accounts, like other assets, are generally subject to probate. The specifics, however, can vary depending on various factors. These include the total value of the estate, your state’s laws and regulations, and the presence or absence of a valid will.

Jurisdiction plays a crucial role. For example, estates in California valued under $184,500 can avoid probate.

Notable Exceptions

Bank accounts go through probate unless they have a joint owner or a payable-on-death beneficiary.

While there are exceptions allowing bank accounts to bypass probate, it’s important to know these apply under specific conditions. One such condition is a jointly held account or those with designated beneficiaries. For example, if a parent has a joint bank account with a child, that account would avoid probate and directly pass to the child upon the parent’s death. However, this is not an automatic exemption and could vary based on the circumstances around the account. Here are three common ways to avoid probate on your bank accounts:

Joint ownership. Joint ownership of bank accounts is one strategic way to bypass probate. However, this strategy also has potential drawbacks. For starters, this will limit your control over the account and could expose you to creditors.

Payable-on-death (POD) accounts. Designating a beneficiary through a POD account is another way to avoid probate. Upon the account holder’s death, the funds are automatically transferred to the beneficiary. While effective, this arrangement should keep beneficiary designations current to prevent unintended outcomes.

Transfer-on-death (TOD) accounts. A TOD account automatically transfers its assets to a named beneficiary when the holder dies For example, if you have a savings account with $100,000 in it and name your son as its beneficiary, that account would transfer to him upon your death.

Using a Living Trust to Bypass Probate

A living trust is a legal arrangement that allows you to place ownership of your bank accounts and other assets in the trust during your lifetime. You can still use the money and make changes as needed, but the trust becomes the official owner. When you pass away, anything in the trust goes directly to the people you’ve chosen without probate being necessary.

To set up a trust bank account, you must update the account’s title at your bank so the trust is listed as the owner. This usually involves filling out paperwork and providing a copy of the trust agreement for reference. Once this is done, the account will be managed according to the terms you have set in the trust.

A trust can also provide privacy, since probate records are public but trust distributions are not. Trusts can be helpful if you want to control how and when your heirs receive their inheritance, such as distribution at a certain age or for specific purposes.

There are costs to set up a trust, and you will need to make revisions if your accounts or beneficiaries change. Still, for many people, this is a practical way to transfer bank accounts and other assets quickly, privately and without the expense of probate.

Bottom Line

SmartAsset: How to Avoid Probate on Your Bank Accounts

Probate can substantially influence the transfer of assets after you die. Two common ways to protect your bank accounts from this process is to have joint ownership with your beneficiaries or designate a beneficiary through a payable-on-death account. These strategies, however, also come with drawbacks. So make sure to consider both options carefully.

Tips for Estate Planning

A financial advisor can help protect your bank accounts and other assets from probate. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Your estate plan will also include end-of-life arrangements. Advance directives are legal documents that enable individuals to retain control over their health care decisions, if they become incapacitated. Here’s a comprehensive guide on advance directives for healthcare.