It’s interesting. It is always the right time to do estate planning, but we never get around to doing it. But, it is especially important to think about estate planning when you go through a life transition, such as retiring or moving to a new state. And suprisingly enough, many of us have more complicated probate estates than we think (owning property in two states would be one example). A simple thing anyone can do to reduce probate costs and hassles is to reconfigure their non-retirement accounts as PODs or TODs. What are PODs and TODs? Let me explain. I’ll start with explaining probate estates.
Your probate estate includes anything that transfers from you to your heirs via your will (or by state law if you don’t have a will). Your estate pays the county courthouse fees to probate your estate. The fees are usually based on the value of the estate. So, the more that transfers via will, the more your estate pays in probate fees (and the more time and effort it will take to settle the estate).
Many of your assets automatically avoid probate. Retirement accounts are one. Life Insurance proceeds are another. These assets pass via contract to the designated beneficiaries.
Warning: If you designate “My Estate” as a beneficiary you’ve put the accounts into your probate estate and opened a whole new can of worms.
However, most taxable accounts (checking, savings, brokerage accounts) do not pass via contract unless you take action. That is where TOD and POD comes in. TOD stands for “Transfer on Death”, POD stands for “Pay on Death” and in effect if you make the effort to convert your accounts to POD or TOD accounts they function just like a retirement account and the assets pass outside probate (saving you money and time…my two favorite things to save).
How do you set up a POD or TOD account. Normally it is as simple as filling out a form. At one major financial institution that I checked you can change your brokerage account or mutual fund to TOD by filling out a form… and it is free. A Credit Union that serves military members has a similar capability for POD accounts. It’s free too.
Your estate situation may be such that you don’t need this (You have everything in a Living Trust, for example). But, there really isn’t a good reason to skip doing it. All it takes is time (and not that much) and it will make things significantly easier and less expensive for your heirs.