Life insurance policies, retirement accounts, living trusts, payable-on-death accounts, and property title with rights of survivorship will go directly to a beneficiary without being subject to probate. These items supersede anything written in your will because they automatically transfer to a beneficiary upon your death. For example, if your will says your husband should receive all your assets, but your daughter is named as the beneficiary within your life insurance policy, the latter stands. This is one reason why it’s so important to stay up to date on beneficiaries, particularly after big life changes, such as marriage, divorce, or death.
Here are five ways to leave your family money that don’t need to be included in your will.
1 Life insurance
The purpose of a life insurance policy is to provide someone with money upon your death. Whether you buy a policy on your own or sign up for coverage through your employer, you’ll be asked to choose a beneficiary. This person will receive all or part of the death benefit if you die during the covered term. The courts and creditors cannot access that money — it will go directly to the beneficiary. If you choose more than one beneficiary, you can decide how much will go to each person. You should also name a back-up beneficiary in the event you outlive your first or second choice. If you fail to name a beneficiary on your life insurance policy, the death benefit will likely be paid to your estate and must go through probate before any of your loved ones can get access to it.
2 Retirement accounts
Retirement plans ask you to name a beneficiary as well because these accounts have a transfer-on-death (TOD) designation. When the account owner dies, the money is generally either paid out in a lump sum or taken as an annuity by the beneficiary. However, the rules are different for spouses and non-spouses and there are varying tax implications, so you may want to talk to a financial planner or tax adviser about the best way to name beneficiaries to make sure the money goes exactly where you want it to. Other non-retirement investment accounts that hold stocks, bonds, or mutual funds can also be transferred upon the death of the owner to a named beneficiary.
3 Trust funds
A trust establishes a genuine plan for transferring money and property to heirs, managing estate taxes, and giving to charity. It stands as a separate entity from your will and is sheltered from probate. As such, the assets held in a trust — which can be anything from investment accounts to real estate to a fine art collection — are transferred to beneficiaries upon your death according to your exact wishes. Notably, a trust can name beneficiaries who will receive income or assets while the trust owner is still alive, and another set of beneficiaries to inherit the remainder after their death.
4 Payable-on-death accounts
Money held in bank accounts are generally subject to probate unless the account is placed in a trust or holds a payable-on-death (POD) designation. You can convert any deposit account, such as savings or checking, into a POD account by contacting your bank and naming a beneficiary. Upon your death, that person will automatically become the owner of the account. The money will not be subject to the probate process, though it may be accessible to creditor claims.
5 Rights of survivorship property
Joint bank and investment accounts and jointly held real estate can be designated with “rights of survivorship” to avoid probate and allow for a swift transition of ownership. This means that when one owner dies, the surviving member inherits their share, regardless of what’s written in their will. Again, property that passes to the joint owner avoids probate and is not accessible to other beneficiaries of the deceased person’s estate or creditors.