The Law Offices of Joseph Adelizzi

6 Ways to Transfer Your Assets From Beyond the Grave

If there’s one thing living through a global pandemic has taught us it’s that life is fragile and fleeting.  It’s never fun to think about the end of our lives but planning ahead before it’s too late is one of the most important things we can do for our loved ones.

So what happens after we die?  I don’t mean in a metaphysical way.  That is for another blog.  I’m talking about your belongings, your property, your house, your cash, your accounts, your stocks and bonds, and even your body.  What happens to all of that?  Like many things in the legal world, the answer is it depends.  It depends on whether you have planned ahead, and what that plan includes.

In California, there are 6 ways to transfer our assets after we die.

1. No Plan

Having nothing in place means that, by default, you have effectively adopted the State of California’s plan.  The result?  Probate of an intestate estate – a long and arduous process by which the court will oversee the distribution of your assets to your heirs under California’s laws.  And heirs receive the assets with your tax basis, so when they sell the assets, they will have to pay tax on their gain.  This will cost your loved ones not only time, but money.  Not to mention, you may not like the outcome of who gets your estate.

2. Joint Tenancy

Let’s say you know you want to leave your house to your niece.  Adding her name to a deed held in Joint Tenancy will avoid probate via the “right of survivorship,” a fancy term for survivor-takes-all.  But this, too, has its problems.  Sharing title with your niece means she can transfer her share to someone else.  Or, that her creditors can now attach the asset.  Like in probate, the surviving Joint Tenant receives the property with your tax basis, so tax will be due when the property is sold.

3. Gift

The problem with gifting an asset is simple: once you give it away, you no longer own it.  If you need it later on, it is no longer yours.  And again, whoever receives the gift will have to pay tax on the gain when they sell it.

4. Will

When a lot of people think of having an Estate Plan, they think of having a Will, where they name beneficiaries to receive their assets.  Although Wills accomplish the task of ensuring the right things go to the right people, it may not be the best option for you.  First, Wills require probate proceedings to affect the transfer, which generally costs 5% of your gross estate.  Plus, it takes 18-24 months, the proceedings are public records, and any out-of-state property requires an ancillary probate.  As you can imagine, the emotional effect takes its toll.

5. Trust

One of the most effective mechanism to transfer assets after death for many people is the Revocable Living Trust.  Think of a Trust like an empty box.  You “fund” a Trust by placing assets (like your house, accounts, and stock) into the box.  The “Trustee,” which is often you during your lifetime, holds onto that box, and when you die, distributes the assets however you instructed.  Revocable Living Trusts are good because they are revocable, so you can change your mind.  They also allow you to control your assets after your death and offer protection against your beneficiaries’ creditors.  Assets are transferred at a stepped-up basis, so no tax is due upon the sale of the assets.  And importantly, if done correctly, TRUSTS AVOID PROBATE!

6. Beneficiary Designation

IRAs, life insurance, policies, stocks, and certain retirement plans allow the owner to designate the beneficiary through a beneficiary designation form.  This means the asset will be distributed outside your Will or Trust.  The upside to Beneficiary Designations is it is easy to change or add beneficiaries.  There may also be tax advantages, depending on how the beneficiary elects to receive the distribution.  However, this type of transfer is limited to the certain types of accounts mentioned above.

A comprehensive Estate Plan can be, and often should be, made up of more than one of the 6 mechanisms described above.  Proper Estate Planning ensures an orderly transfer of your assets to the people you want them to go to, for the least cost, quickly, and with as little taxes as possible.  Also, a comprehensive Estate Plan considers what you want to happen to your body, both at the end of life and after death.

If you would like help creating an Estate Plan, talk to an experienced Estate Planning Attorney.