Another thought provoking article by Ernie McDaniel
Avoiding probate (succession) is quite doable. It only takes a little planning.
Let's understand from the beginning what probate is and what it is not. It has nothing to do with federal estate taxes or state inheritance taxes, even though these also occur as a result of death. Probate's purpose is a fair and timely transfer of ownership of assets from the deceased to the appropriate survivors, making certain that creditors' rights are respected as well.
Probate is an expense but it is generally less expensive in Louisiana than many other states. Probate may cause inconvenience to heirs as it can involve delays and legal proceedings before assets can be distributed. But what you might object to most about probate is that it presents for public examination your private information. Such exposure may be more than an inconvenience; it could become a financial threat to both your assets and your loved ones who receive them. Think identity theft. Think scams. Think prevention!
What steps can you take now that might help defend your loved ones from a potential onslaught? Thankfully, there are several. First, let me point out that a will alone does not avoid probate. A will in combination with a living trust may avoid probate, but only for properties held by the living trust. Don't let the word “trust” scare you. A living trust is simply an alternative way of owning property. It need not involve bank trust departments or any prohibitive expenses or difficulties. The primary expense will be setting up the trust and that will vary with the attorney who prepares it. Of course, cheapest isn't always best. Your attorney's area of specialization and level of expertise definitely matters. We are fortunate that Shreveport-Bossier is blessed with some well qualified attorneys in this field.
Please make certain you use a local attorney in whom you have confidence when determining whether a living trust may be appropriate for you. Beware living trust salesmen. How do you recognize a salesman? He is presenting you a living trust, possibly also a will, power-of-attorney, or other legal document, and he is not himself an attorney. If you aren't sitting down with an attorney in his office for a discussion, you should be asking yourself why not.
Real estate and personal property may be passed through living trusts. For other assets, you may want to consider alternative methods. Here's some good news about your IRA or 401(k): As long as you avoid making your estate beneficiary, these may avoid probate. For this and many other reasons, beneficiary provisions of these plans should not be taken lightly. Be sure you get guidance from a well qualified financial professional.
We all know there's a limit to how much money you can put into an IRA or 401(k). So what do you do with other savings? Some bank accounts allow a pay-on-death (POD) provision that avoids probate, but it may be ill advised to keep more than emergency funds in these low-paying FDIC insured accounts. There is another method conservative folks may want to consider, one that involves no maximum investment: deferred fixed annuities.
Deferred fixed annuities vary greatly as to design. You might want to consider either the traditional or the equity indexed type, and there are hybrids, too. These are all contractually guaranteed and backed by the full faith and credit of an insurance company (not the FDIC). With deferred fixed annuities, as with IRA's, probate may be avoided as long as a beneficiary other than the estate is named. Again, unlike with an IRA, there is no legal limit on how much you can invest in a deferred fixed annuity.
Ernie McDaniel is a Chartered Financial Consultant and President of McDaniel Financial. He can be reached at 318-798-9022.
