I put the cart before the horse by presenting it before explaining the probate avoidance methods such as joint tenancy, trusts, beneficiary designations, etc. However, this is a good exercise and shows the importance of the planning process and it will get you thinking seriously about your personal situation. It also shows you just how easy it is to avoid probate with a little planning knowledge.
Refer back to the Asset Allocation Chart while reviewing this detailed analysis.
Read on below for complete information
This couple wanted all of their joint tenancy property to simply revert to the other when one dies. That is the primary purpose of owning property in joint tenancy. The surviving partner would then have to consider how the joint tenancy property's registrations would be changed to avoid probate when they died. They would consider either a living trust, POD designations, or estate gifts.
Each partner wanted to insure that when either died their two children would each receive an inheritance. However, because the retiree's wife would have a reduced pension – 55% of the husbands annuity – the husband and wife designed their plan so that the wife's estate would be larger to handle any unforeseen emergencies. The husband's estate is less because his earning power is greater with his regular annuity.
The example is for a federal employee earning $68,000 a year just prior to retirement. His FEGLI life insurance coverage included one multiple with Standard option A, the additional $10,000. Therefore his total life insurance coverage equals $150,000. He intends to elect a 50 % reduction for his FEGLI coverage so that his wife would have sufficient funds for unforeseen emergencies. He also decided to keep the one multiple at least until age 65. An annuitant can always reduce coverage, however you can't increase coverage unless there is an open season and they are very rare.
You can see from the asset allocation chart that most of the assets are transferred to heirs out of probate through POD or beneficiary designations. The individually owned stocks and other non registered personal effects (not listed here) are transferred through an easy to prepare living trust. They used a living trust because in many cases you can only designate one POD for stocks and bonds and they have two children they want to leave these assets to. The living trust was the best way to do this. See the living trust discussion for more information. The trust also allows you to transfer most other non-registered property such as jewelry, coin collections, personal effects, antiques, art work and so on by simply listing the items on a attachment to your trust document. Therefore, most of your estate can transfer direct to your heirs without going through probate. This site provides examples that I developed by working up my estate plans using this valuable resource. You will need their expert guidance to formalize and finalize your personal plan. This book is easy to follow and written so all can understand the process.
Now that you identified your assets, list how the asset is owned; jointly, individually or otherwise. The next step is to decide who you want to leave each asset to. Your decision will determine – in part – which of the following listed methods of probate avoidance that you will use.
NOTE: Multiple methods can be used or mixed depending on your situation. Refer to Plan Your Estate for variations and exceptions in certain states. This book is a must for anyone planning their estate and especially for those approaching or in retirement. Highly Recommended.