Different Flavors of Transferring Money and Property Outside of Probate
Americans love ice cream. Estate planning? Not so much.
The average American eats roughly 19 pounds of ice cream per year,1 and around 90 percent
of households regularly keep ice cream in the freezer.2 To celebrate our favorite frozen treat,
President Ronald Reagan proclaimed July to be National Ice Cream Month in 1984 following a
joint resolution that took less than two months to breeze through Congress.3
If only all decisions were so quick and easy. With countless combinations of brands, flavors, and
toppings to choose from - not to mention bar, cone, or tub; dairy or nondairy; at home or at an
ice cream shop - choosing ice cream can be hard.
The so-called "ice cream dilemma" has become a metaphor for the difficulty of decision-making
when many options exist.4 This dilemma could help explain why approximately only one in three
American adults has an estate plan5
: They do not know where to start and are overwhelmed by
the available choices.
Advisors encouraging their clients to create an estate plan may want to start small, with
relatively easy decisions such as how to transfer money and property outside of probate. Unlike
the selection of 31 flavors at Baskin-Robbins, nonprobate transfers come in three basic flavors
of passing assets to beneficiaries without going through the formal probate process.
Joint Ownership: A Double Scoop
Assets held jointly with rights of survivorship automatically pass to the surviving owner upon
death, bypassing probate.
Joint ownership is like a double scoop on a single cone - great when things are stable and hold
up, but if one scoop melts or starts to slip, the whole thing can topple. It can be sweet when both
owners are aligned but risky when life gets messy and you are the one stuck holding the cone.
Pros:
- Simple setup. Creating joint ownership typically requires updating a deed or account
ownership form at the relevant financial institution. It involves minimal cost and minimal
paperwork.
- Incapacity flexibility. If one owner becomes incapacitated (unable to manage their affairs),
the other retains full control of the asset without court intervention (such as a guardianship
or conservatorship). This arrangement can be useful for aging couples or an adult child and
parent.
- Automatic transfer. Upon the death of one owner, the surviving owner automatically and
immediately inherits the asset without delay or probate proceedings.
Cons:
- Shared control and consent. All owners must agree about decisions regarding the asset,
such as selling real estate or, in some cases, liquidating and closing the joint bank account.
This requirement can complicate things if there is disagreement or if one owner is
incapacitated and has not granted someone the authority to act on their behalf in a financial
power of attorney.
- Mutual liabilities. The jointly owned asset is exposed to the financial risks of each owner,
which could include creditors, lawsuit judgments, or divorce proceedings. (There is an
exception for a special form of joint ownership exclusively for married couples, called
tenancy by the entirety, which provides unique legal protections and differs from other types
of joint ownership.) Shared vulnerability puts the entire asset at risk.
- Tax implications. Adding a joint owner may be treated as a lifetime gift for gift and estate
tax purposes. Depending on the value of the shared asset, adding a joint owner could
trigger gift tax consequences (if the asset's value exceeds $19,000 in 2025) and require a
tax filing. This approach may also forfeit a basis adjustment at death, resulting in potentially
higher capital gains tax if the asset is later sold by the joint owner and had increased in
value since it was originally acquired.
Designations: Estate Planning Sprinkles
Naming a beneficiary or using a transfer-on-death (TOD) or payable-on-death (POD)
designation is a straightforward way to transfer assets. These designations are widely available
for brokerage accounts, bank accounts, insurance policies, and even real estate in some
jurisdictions. Think of them as the sprinkles on an estate plan: They are easy to add but can be
the first part to fall off and get scattered if you are not paying attention.
Pros:
- Easy execution. Most institutions allow account holders to add or update beneficiary
designations by filling out a paper form. Some even allow online updates. No probate, no
attorneys, and no costs.
- Swift access after death. After the account holder's passing, beneficiaries generally need
to present only a death certificate to the financial institution or insurance company to claim
the asset, avoiding court delay.
Cons:
- No help during incapacity. These designations take effect only when the owner dies. They
are of no help to the account owner when they are alive but incapacitated. Additional tools,
such as a financial power of attorney, are needed to address this gap.
- Unprotected inheritance. The named beneficiary will receive the asset outright, making it
vulnerable to the beneficiary's creditors, divorcing spouse, or poor spending habits if not
protected by other estate planning tools.
- One-size-fits-all. Beneficiary designations offer no built-in flexibility or control over when or
how the inheritance is given to beneficiaries. There are no mechanisms to set conditions,
stagger distributions, or protect the inheritance from potential mismanagement. Control
provisions offered by other estate planning tools allow the client to thoughtfully leave an
inheritance to minor children, beneficiaries with special needs, or adult beneficiaries who
have trouble managing their finances.
Trusts: A Custom Sundae
Trusts are the custom-made sundae of estate planning. They can be layered, made to order,
and individually crafted to detailed specifications.
Pros:
- Probate-free privacy. Any assets properly titled in the trust's name or made payable to the
trust at the owner's death bypass probate and remain private.
- Incapacity planning. A trust can be set up so that a successor trustee can immediately
step in to manage trust assets for the client and on the client's behalf without court
involvement if they become incapacitated.
- Customized inheritance. Forget 31 flavors. Trusts are far more customizable than that.
They can contain any number of specific instructions about distributions, such as those for
education, healthcare, or reaching certain milestones. Trusts can also provide for long-term
management of assets for future generations or beneficiaries with special needs.
Cons:
- Requires asset retitling. For a trust to work properly, the client must retitle their assets in
the name of the trust or designate the trust as beneficiary of each applicable trust asset. An
attorney can help with this process.
- Administrative costs. Trust provisions may require ongoing administration fees, so clients
can expect to pay more when they go off menu and customize their estate plan order with a
trust.
Trusts are best for clients with complex estates, young or special-needs beneficiaries, or a
desire for control over asset distribution. They are perfect for prioritizing privacy, incapacity
planning, and protecting inheritances from the beneficiaries' creditors or divorcing spouses.
Scoop Up the Opportunity
This July, use the fun of National Ice Cream Month to start client estate planning conversations
about which "flavor" of nonprobate transfers may best suit them, their assets, and their priorities.
You might even incorporate a bit of "ice cream psychology"6 to get a feel for what their eating
style says about their personality and how this can influence planning decisions.
Let's make clients' financial futures as sweet as their favorite dessert. Get in touch for
assistance with trust setup and other estate plan strategies.
MEREDITH | PC
4325 Windsor Centre Trail
Suite 400
Flower Mound Texas 75028
214-513-1013
This newsletter is for informational purposes only and is not intended to be construed as written advice about a Federal tax matter. Readers should consult with their own professional advisors to evaluate or pursue tax, accounting, financial, or legal planning strategies.
You have received this newsletter because I believe you will find its content valuable. Please feel free to Contact Me if you have any questions about this or any matters relating to estate planning.
