What if your loved one unexpectedly passed away and you were locked out of your banking account? Worse yet, what if the court became involved and decided that the assets you and your spouse worked so hard to acquire should belong to someone else?

This might seem far-fetched but it was actually the case for one of our clients. In this article I’m going to walk through three ways you can prevent this from happening to you.

  1. Title your accounts with “Joint with Rights of Survivorship”
  2. Setup an account as Payable on Death
  3. Create a Revocable Trust

Title Your Accounts with Joint Rights of Survivorship

When someone passes away, their assets go through a legal process called probate. During this process final taxes are collected and paid, debts are resolved, and inheritances are distributed according to their will. Although probate has its purposes, it can be a lengthy and costly process. So for accounts or assets that need to be accessed right away in order to pay bills and the mortgage, probate can be a disaster. It can also result in account limbo while waiting for the probate process to finish winding through the courts

One way to set up accounts to get around probate is to title the account jointly in the name of yourself and your loved one. However, the key here is that the account needs to be set up joint with rights of survivorship (JTWROS).  This means that if either of you were to pass away, the survivor automatically becomes the owner of the entire account without having to go through the probate process.

Setting up an account this way means that both of you own the account; this is way this account titling is more common with spouses. However be aware that the nature of this account is not for everyone. Since both account owners have access and complete control over the assets in the account, it’s best for stable, healthy relationships where you trust the other account owner.

Opening an account as Payable On Death (POD)

This name might sound a little scary, but it’s quite simple. Unlike a joint account where ownership is shared, a POD account owner has full control over the assets. However once the owner of the account passes away, the person designated to be paid on death will automatically inherit the account without the need for probate.  

A common usage for these accounts is to enable a child, relative, or trust to inherit assets without going through probate.

Investment accounts use a similar account titling called “Transfer on Death” (TOD), which functions in the exact same way. However, not all brokerages necessarily support this account type. For example, Robinhood doesn’t allow the creation of joint accounts or Transfer on Death accounts, which guarantees that their accounts will be required to go through probate.

Create a Revocable Trust

Another way to avoid probate is by creating a revocable trust. One of the purposes of creating a trust is to change an asset from being held by you and your estate, to being held by the trust. Because trusts are private entities, they are protected from probate. Even if you were to die, the government would have no say as to what happens to the trust’s assets.

When creating a revocable trust to avoid probate, here are a couple important things to remember to do:. 

  1. Put assets into the trust – After creating the trust, you’ll need to put assets into the trust in order to allow those assets to avoid probate. 
  2. Name a successor trustee – A successor trustee will administer the trust if something were to happen to you (i.e. death or incapacity). When creating your trust document, it’s important to decide who will be the successor trustee if something were to happen to you.

When considering access and immediate availability of assets, these three methods are ways to avoid a potentially lengthy probate process. For any questions related to this or other aspects of financial planning, feel free to reach out to us!

Jared Ong

Jared Ong oversees portfolio management, trading and technology. He previously worked at the Capital Group as a business systems analyst where he was integral in improving the trade operations group’s equity, fixed income, and foreign exchange trade processes. A graduate from Brigham Young University, Jared holds a Bachelors in Music. In his spare time, he enjoys composing and arranging music.