What happens when you die?
(to your money)
Most people do not know how assets can be collected when the owner dies. Knowing these basics can help you make the best decision for your family. As a general rule, these rules apply, talk to a lawyer about your specific situation.
Type of Asset
How Transfer Works on Death
Any account with a beneficiary listed/joint account
If joint owner is living, the joint owner gets the account. If the joint owner is not living, or there is no joint owner, the beneficiary gets it. No probate required.
Life insurance /retirement accounts > $180K, no beneficiary listed
Probate required to collect (~2 years,~ $10k in fees)
Real Property < $50k Other Account < $180k, (bank accounts, stock), with no beneficiary listed
Property or accounts can be collected without probate as long as total sum of accounts in this category does not exceed $180K
Real Property > $50k and Other Accounts > $180K (bank accounts, stock), with no beneficiary listed
Probate required. Property or accounts can be collected without probate if you have a trust (using an 850 petition = 4 months, ~$5k in fees)
Share your log-in information or account is lost
Business Interests (LLC, Sole Proprietorship, not shares
Your incorporation documents control, some state who receives the interest, the person designated receives the interest without probate.
If they do not state who gets the interest and allow assignment, then a signed assignment allows transfer without probate.
If they do not state who gets the interest, there is no assignment, and the interest is > $180K, probate required, unless you have a trust (trust allows collection with an 850 petition - 4 months, ~$5k in fees)
Considerations for Specific Beneficiaries
Minor listed as beneficiary on account
The money goes into a locked account and the beneficiary gets all of it at 18.
Special Needs Beneficiaries
Make sure they are not listed as beneficiaries on any accounts, or they might lose their public benefits/have to do a spend-down.
A couple of notes about how these collection options work:
Collecting Accounts that are Tilted in the name of the Trust or have a Beneficiary Designation
For these accounts, the basic process is to submit a death certificate and then the trustee or the designated beneficiary fills in a form and a check is written to the trust or beneficiary. It may take several months to process these claims, some claims are processed in 7-10 days. It depends on the financial institution.
Collection of Accounts < $180,000
These accounts are collected using a small estate affidavit. You will need a death certificate and to wait 40 days after the decedent passes to collect the account. This type of collection option does not prevent a wrong-doer from collecting the asset first (assigning a beneficiary or using a trust would be better at preventing fraud). Many clients rely on this method for small accounts, and usually, it works pretty well. The sum of all accounts being collected using this method must be under >180,000. It may take several months to process these claims, some claims are processed in 7-10 days. It depends on the financial institution.
850 Petitions (aka Heggstad petition) are a common court proceeding that usually take about four months. It is very common that they end up taking 8 months to a year.
When not to use an 850 Petition. If funds in an account are critical to your family’s support, I would not rely on an 850 petition as a way of transferring assets. Common problems that delay or reduce the transfer include parties can object to an 850 petition, it might be difficult to locate and serve all the beneficiaries, and there will be attorney’s fees and costs in collecting the asset.
When an 850 Petition is a reasonable choice. For families who have a large number of accounts, and ample financial resources in accounts titled in the name of the trust, this can be a reasonable way of collecting and transferring assets to the trust after death (good for people with a large number of angel investments or other assets that are tricky to title during life).
Some clients use this procedure when they have many investment properties that they are not planning on keeping for a long period of time and they do not want to pay titling fees and deal with insurance concerns. If you are using this strategy for these reasons and you have one beneficiary, such as your spouse, you might consider doing a transfer on death deed to your primary beneficiary, so they may have immediate management right of the property.
Probate is a legal process that most people find it to be pretty excruciating. Once you are in the probate process, there is no shortcut to getting out of it. You have to wait for a court to approve your actions before you can collect accounts and make distributions. It can take one year, but most cases take several years.
Creating revocable trust and funding it correctly is the best way to reduce the cost of collecting assets on your passing. Below is a simple overview of the most important trust funding steps, and what happens if you do not complete those steps.