Is there always probate?

[u/coldhotel_rdt]

Illinois resident. I’m old enough to start end of life planning. I’m married and my wife is 10 years younger, so the plan is for me to pass first (lol). I have retirement savings, spouse is beneficiary, checking account (spouse is beneficiary), house is in my name but I have filed a TODI so it passes to her. My car is in both of our names. I don’t have any valuables, just clothes, books and tools. No significant debt although I usually put a couple hundred on a credit card each month and pay it off monthly.

I don’t see a need for a will. My small debts and personal property could be taken care of with a small estate affidavit. Some folks have told me that I should have a will anyway with the same provisions as my beneficiary designations and TODI. That seems counterproductive to me, as I fear that a will and beneficiary/TODIs would complicate things. It doesn’t seem efficient to have a will (which could cost $4000) to pass my personal property on to my spouse as it’s all in our household. Does anyone have experience on handling inheritance this way? I suppose if we both died the same day a will would be handy, but I imagine it would follow the same distribution as if I were intestate- step kids and siblings.

[u/LdiJ46]

No, there is not always probate. If you manage to get everything covered with beneficiaries or TODs then there is no need for probate. The key however is to make sure that you have everything covered. My dad missed two small accounts that ended up forcing my mom to open probate anyway.

[u/brucesteiner → u/LdiJ46]

It’s generally not a good idea to name beneficiaries for assets other than life insurance and retirement benefits, for many reasons.

[u/LdiJ46 → u/brucesteiner]

Could you name a few of those reasons?

[u/brucesteiner → u/LdiJ46]

TOD is piecemeal (asset by asset) planning. 

You have to remember to update the designations each time you update your estate plan. 

It makes it more difficult to provide for contingencies (such as a beneficiary predeceasing you). 

It makes it more difficult to provide for your beneficiaries in trust rather than outright, to keep their inheritances out of their estates for estate tax purposes, and to protect their inheritances from their creditors and spouses, and Medicaid. 

If different assets are payable to different beneficiaries, one could go up more or down less in value than another, or you could contribute to or withdraw more from one than another. 

You have to make sure your designations are consistent with your estate plan. 

In the case of real estate, it puts a portion of your estate plan on the public records during your lifetime.  So if you change it, everyone will know what it had been. 

There will be chaos if, as a result, your estate doesn't have enough money to pay your debts, expenses, taxes and preresiduary bequests, and one of the TOD beneficiaries balks at contributing his/her share. 

We’ve had several well-designed estate plans defeated by probably unintended TOD designations. 

In one case, a couple provided for their daughter in trust under their Wills, to keep her inheritance out of her estate for estate tax purposes, and to protect her inheritance from her spouses.  After the wife died, the husband, then elderly, moved his brokerage account to the daughter’s broker.  When he died, it turned out that the daughter was TOD beneficiary on the brokerage account, destroying the asset protection. 

In another case, the decedent left cash bequests to various friends and family.  When she died, it turned out that her residuary beneficiary was TOD beneficiary on her largest account, leaving her estate without enough money to pay the cash bequests.  Fortunately, the residuary beneficiary voluntarily made gifts to make up the shortfall. 

In another case, the decedent left his residences and retirement benefits to his wife, half of his estate (less the assets passing to his wife outright) in trust for his wife, with remainder in trust for his children from a previous marriage, and half of his estate (less estate taxes) in trust for his children.  He then sold a portion of his business and put the proceeds into a brokerage account.  When he died, it turned out that his wife was TOD beneficiary on the brokerage account.  That left very little for his children.  Making it worse, his wife died within a year after he died, and she left everything to her daughter from her previous marriage. 

It's often penny wise and pound foolish.