Since a 1965 book by financial planner Norman Dacey popularized avoiding probate, the strategy has become ingrained in the American financial psyche, and the U.S. financial system has accommodated consumers by making it easy to set up IRAs and other brokerage accounts to avoid probate.

Now, with the first generation of Americans who set themselves up to avoid probate starting to die, the quiet evolution toward avoiding probate has suddenly created an urgent need for Baby Boomers to understand what will happen to their assets when they die.  Once the domain of legal professionals only, consumers must be aware strategies for estate planning and avoiding probate is the domain of financial advisors, part of the financial advice process.

Probate is the term for a legal process of distributing your assets after you die. It’s historically been court-supervised, but most states now offer an independent administration option and takes months or years. Probate opens your will to objections from disgruntled family members, heirs who feel shortchanged, and makes public a record of personal information about your estate. 

Since the 1980s, states changed property laws to make avoiding probate easier. Now, naming the beneficiaries of your IRA, Roth IRA, and other federally qualified retirement accounts avoids probate and that puts the financial advisor at the center of that crucially important estate planning decision.”

“Avoiding probate became standard operating procedure for the entire generation of Baby Boomers with the advent of irrevocable trusts,” said L. Paul Hood, Jr., who teaches estate tax planning to legal, accounting, and financial professionals. “And, now, as Baby Boomers are starting to die, many don’t completely understand that their financial advisor – and not their attorney – plays a pivotal in ensuring your estate passes to beneficiaries outside of probate and in conformity with your wishes.” 

In addition to beneficiary-designation assets, most property that used to pass via probate can avoid it altogether now if they are properly titled. Real estate can pass by joint tenancy with rights of survivorship. Bank accounts can pass to the account beneficiary via a pay-on-death (POD) account. Marketable securities can pass to the account beneficiary via a transfer-on-death (TOD) account. In joint tenancy, POD and TOD accounts, the accountholder’s will is irrelevant, even if it conflicts.

What if the account holder wants to change the account beneficiary in a POD or TOD account? They don’t need to go to their estate planning lawyer; they need only visit (even electronically) the account sponsoring organization.

Unfortunately, with the rampant increase in elder financial abuse, it’s now incumbent on the employees and representatives at banks and brokerages to keep watch for vulnerable seniors being taken into offices to change account beneficiaries without their consent or understanding. Given that account sponsoring organizations now effectively control ultimate disposition of the accounts on death, it’s increasingly clear that organizations that don’t take adequate precautions to protect the vulnerable and elderly are going to be sued if they fail to do so.

Depending on your personal circumstances, a legal professional specializing in estate planning can be called in to assist in certain instances, including:

• family members with special needs
• transfer ownership of a business or investments
• gifting your residence to heirs
• leaving assets to charity
• estate is valued at more than $12.06 million 

Estate planning is central to fulfilling our role as your trusted financial advisor. If you have questions about what happens to your assets when you die, please do not hesitate to contact us. 

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