While Mike Causey is away, please enjoy this column which originally published March 30, 2022.
One of the things your mother never warned you about, but maybe should have, is probate. As in how, and why, to avoid going through that legal ordeal that Charles Dickens turned into a book whose title says it all: Bleak House! It was supposedly inspired by several real English probate cases, at least one of which took more than 100 years to settle. So how much time do your prospective heirs have?
If you don’t have a will and an estate plan, probate is an after-you’ve-gone legal struggle. One which could last months, if not years, in a battle over what you intended your family (or friends) to have: your estate! And while that sounds a bit posh to many, the fact is most of us are worth more dead than alive. And that’s especially true of long time federal/postal workers. Most have life insurance, lifetime survivor benefits, maybe a home or other investments, including TSP or other 401(k) accounts. Who gets them and when depends on what you have done, or should do, sooner rather than later. That is, learn what you need to legally protect your family/friends and be sure they get what you want them to get.
So today’s guest on our Your Turn radio show (10 a.m. EDT) is attorney Tom O’Rourke. He’s a veteran of the IRS and a long-time specialist in taxes and estate planning. Some of his clients are TSP millionaires. Most aren’t. But all recognize they needed legal help to insure that their wishes will be fulfilled in a timely fashion when they are no longer calling the shots, dead or alive! If you have questions for Tom, send them to me (email@example.com) before showtime. Meanwhile here’s an intro Tom wrote about why you need to avoid probate and what we’ll be talking about today:
A common goal is to simplify your estate plan to make the administration of your estate as easy as possible for your loved ones. This often involves structuring your plan to avoid probate. While probate in most cases is not unduly burdensome, it does take time and does involve certain costs. For many individuals, probate is easy to avoid.
Common tools that will allow you to avoid probate are jointly owned property arrangements, beneficiary designations, and the use of a revocable trust. Two of these, beneficiary designations and joint property arrangements, many times do not require the involvement of a lawyer.
Many individuals hold title to property in joint names. Property held jointly, or as a tenant by the entirety with a spouse, passes by operation of law to the surviving owner upon the death of the first owner. This always avoids probate and supersedes the terms of a will or a trust. A third form of joint ownership is a tenancy in common and property held as tenants in common does not avoid probate. Rather, the distribution of such property is governed by a will, if you have one, and if you do not have a will, by state law. It is always subject to probate.
A word of caution for persons using joint property arrangements — the property may be subject to the claims of the creditors of your joint owner.
Beneficiary designations provide a simple way to transfer property. The designations may be in the form of a POD (payable on death) or TOD (transfer on death). Federal employees can designate beneficiaries for all of their job related benefits including their annuity, TSP, accumulated leave or salary, and life insurance. In addition, virtually all types of financial assets allow the designation of a beneficiary. Some states (Maryland) allow the designation of a beneficiary for a motor vehicle
If you have designated a beneficiary, any assets covered by the designation pass to the beneficiary at death. They are not subject to probate and supersede the terms of any will or trust.
If you have assets other than joint property or assets that allow a beneficiary designation (most commonly real estate) and want to avoid probate, you may establish a revocable trust to hold this property. The trust must own property for it to achieve the goal of avoiding probate. In most situations, you should enlist the assistance of a knowledgeable estate-planning attorney to establish a revocable trust.