How to Guarantee Brokerage Accounts are Passed on Without Probate

Many people misunderstand the term probate and believe that if you bypass probate, you avoid inheritance tax. However, what you're actually doing is saving attorney fees by removing the asset from the probating of the will. Avoiding probate also allows for a brokerage account to be transferred rapidly to the beneficiary.

Difficulty: Moderately Easy

Instructions

1. Choose the recipients carefully. Once they have been chosen, you still can change them, but if you're physically incapable of changing the recipient, it may be impossible. If you've designated a power of attorney, that person may not be able to change it for you, particularly if he or she is to be named beneficiary.

2. Ask for the social security number, date of birth, address and legal name of the recipient of the account after your death. This will be used for identification purposes once you have passed.

3. Consult your stock broker about adding a Transfer on Death (TOD) to the brokerage account. A named beneficiary always goes directly to the recipient and cannot be contested, like a will. This step also bypasses probate.

4. Choose a jointly held account, which is usually better for spouses. A jointly held account cannot be contested either and bypasses probate, but it allows the other party to gain full access to the brokerage account.

5. Create a trust. Trusts avoid probate but can be as much hassle and cost as a probated will. Most people can bypass probate without the use of a trust, and do it more easily and less expensively.

Tips & Warnings

• If you're an heir, make certain that your attorney charges by the hour. Get it in writing, as unscrupulous attorneys have been known to let the heirs do all the leg work only to charge a percentage of the estate. Get all terms agreed to up front.
• If you're an heir to a TOD or jointly held account, work directly with the financial institution.
• If you've created a trust, understand that your power of attorney cannot act on your behalf. You must be declared incompetent before an alternate trustee can act on your behalf. Have a joint trustee, if possible, or avoid a trust completely.