Passing on assets is easier with proper paperwork

Dear Jonathan: I am a widower. My only child, my daughter, is the sole beneficiary of my estate under my will. When I prepared my will, I did not prepare a trust because quite frankly I didn’t feel I had a large enough estate to warrant the cost. Now I am having second thoughts because what I do have, i.e., my house and several bank accounts, I would rather have avoid probate. Short of putting my daughter’s name on the title to my house and my bank accounts and CDs, is there any other way that my estate can avoid probate without my creating a trust?

Jonathan Says: Depending on where you live, you may be able to accomplish probate avoidance without creating a trust. You should check with the financial institutions where your bank accounts are held to see if they permit you to name a beneficiary on those accounts. These are known as “TOD,” which means “transfer on death” or “POD,” which means “payable on death” designations. If either one of those designations are permitted in the state where you live, you could name your daughter as the beneficiary to receive those investments at your death.

Deeding your home to your daughter at your death without going through probate might be a little bit trickier. Some states allow what are known as “ladybird” deeds or “beneficiary” deeds. With this type of deed you would transfer your interest in the home to yourself for life, and upon your death, if you still own the property, the property is conveyed to the beneficiary you have named, which in this case would be your daughter.

You should check with an estate planning attorney in your area to determine whether either of these strategies is available to you in the state where you live. If not, in order for your estate to avoid probate, you will have to go the traditional route of creating a trust and retitling your assets to that trust. Good luck.

Dear Jonathan: I have four children and I want each of them to receive equal shares of the assets held in my trust at my death. The problem is that two of my children have borrowed money from me and I very much doubt that they will be in a position to pay that money back before I die. Also, these children have borrowed substantial sums from me over the years and in a sense I feel they have already received their share of their inheritance.

I have considered not leaving them anything and then telling them that they have already received their fair share, but they are good kids, their financial circumstances were not of their own making, and I know they would be hurt if I left them out completely. As for my other two children, they are both financially stable and don’t really need the money, but I think they would be hurt if I didn’t leave them something. Besides wanting to treat all of my children equally, I also want there to be family harmony after I am gone. Do you have any ideas on how I could accomplish both of these goals?

Jonathan Says: Instead of cutting out the two children who have borrowed from you or going the other direction and cutting out the two financially stable children, you might compromise by having your estate divided equally between all four of them, but then indicate in your trust that any child who has borrowed from you will have their share reduced by 50 percent of the amount they still owe you at your death. By doing this, you are making them partly responsible for the monies they borrowed but also allowing them to still receive something at your death. Since you did not indicate how much money they have actually borrowed or the size of your estate, both of those factors will need to be taken into consideration when you decide how you want to proceed.

Whichever way you decide to go, I recommend that you consider telling your children what you are doing so that there are no surprises. This will also give them the opportunity to discuss any questions or concerns they have with you at that time. This should help to avoid any hurt feelings or anger any one of them might have had after you are gone, which should go a long way in maintaining family harmony. Good luck.

Jonathan J. David is a shareholder in the law firm of Foster, Swift, Collins & Smith, P.C., in Grand Rapids, Mich.