Different Flavors of Transferring Your Money and Property Outside of Probate
It is summertime, and the living is easy.
Maybe you spent the day out on the boat, at the beach, or at home relaxing in your most
comfortable lounge chair. As the sun sets, you have a hankering for a sweet treat and decide to
get some ice cream - a no-brainer in July, National Ice Cream Month.
Do you want to eat what is in the freezer or go out? Should you order online or decide at the
window? Cone or cup? Dairy or nondairy? What flavor are you craving?
You are facing what is known as the "ice cream dilemma," which has become a metaphor for
the difficulty of decision-making when there are nearly unlimited options.1 This dilemma could
help explain why only around one in three American adults has an estate plan2: They do not
know where to start and are overwhelmed by the decision-making process.
So perhaps you start small, with a relatively easy decision, such as finishing the ice cream bars
you have already bought or, in the case of your estate plan, choosing how to transfer some of
your assets (your accounts, money, and property) outside of probate.
Why Avoid Probate? The Cherry on Top
You have put together the basics of your estate plan, but something seems to be missing - that
last little sweet detail that ties it all together and crowns your efforts, turning a few simple scoops
into something special, satisfying, and totally shareworthy.
Skipping probate is the cherry on top of your estate plan. It avoids the court-supervised
procedure of validating a will, settling debts, and distributing a person's assets according to their
estate plan (or, if no estate plan exists, according to state law). Probate can drag on for 6 to18
months depending on the jurisdiction, tying up assets when families need them most. It also
carries with it administrative and court fees (in some states up to 3-7 percent of the value of
what you own at death), melting away wealth like ice cream in the heat. Still another downside
of the probate process is that it is public, meaning that some of your personal and financial
details become part of the public record.
Unlike the selection of 31 flavors at Baskin-Robbins, nonprobate transfers come in three basic
flavors of passing assets to beneficiaries outside probate, where transfers are faster and more
private.
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 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 (like 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 to certain decisions about the asset,
such as selling real estate or, in some cases, liquidating and closing a joint bank account.
This requirement can complicate things if there is disagreement or if one owner is
incapacitated and has not granted someone the power 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 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 states.
They are the sprinkles on an estate plan: easy to add but possibly the first part to fall off and get
scattered if you are not paying attention.
Pros:
- Easy execution. Most institutions allow you (as the account owner) 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 your 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 you die. They are of
no help to you if you 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 you 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 your specifications.
Pros:
- Probate-free privacy. Any assets properly titled in the trust's name or made payable to the
trust at your death bypass probate, as smooth as premium ice cream, 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 you and on your behalf without court involvement if you
become incapacitated.
- Customized inheritance. Forget 31 flavors. Trusts are way more customizable than that.
They can contain any number of specific instructions about distributions, such as 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 your trust to work properly, you must retitle your assets in the
name of the trust or designate the trust as the beneficiary of each applicable trust asset.
However, it is not exactly scooping your own ice cream, since an attorney can help with this
process.
- Administrative costs. Because provisions may require ongoing administration fees, expect
to pay more when going off menu and customizing your estate plan order with a trust.
Do Not Let Your Estate Planning Goals Melt Away
How you eat your ice cream and how you choose to set up your estate plan can say a great
deal about your personality and what motivates you.
Are you what behavioral psychologist Jo Hemmings calls a biter (impulsive and confident), a
nibbler (cautious and thoughtful), a licker (relaxed and methodical), or a guzzler (enthusiastic
and impatient)?3
No matter how you prefer to approach estate planning, do not let the number of options cause
brain freeze. We can help you create a plan that fulfills your craving for peace of mind, smooth
transfers, and a legacy that is as sweet and satisfying as ice cream in the summer. Call us to
create or update your existing estate plan.
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 Counselors 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.
