There are many different financial instruments that can be used to optimize your resources, protect your assets, and prevent asset erosion during transfer to your loved ones after you pass away. Some of these are considerably complex because they have to be to respond to the realities of the tax code while satisfying any number of personal objectives. However, there is something to be said for keeping it as simple as possible in every field of endeavor, and this is true for estate planning as well.
Any assets that you pass on to your loved ones using a will are not going to arrive at their destination until your estate goes through probate. Probate is a legal process during which the probate or surrogate court determines the validity of the will and supervises the administration of the estate. Many people choose to construct their estate in a way that enables probate avoidance because probate is costly (probate expenses can consume 5% or more of your estate’s total value) and it is time consuming. It can take several months to several years for probate to run its course, and your loved ones will not receive inheritances while the estate is hung up in probate.
One very simple way to transfer assets to your heirs outside of the probate process is through the creation of pay on death or transfer on death accounts. You simply go to the bank or financial institution of your choice and open an account naming a beneficiary who would assume ownership of the funds in the account upon your death. Many brokerages offer these types of accounts as well.
Aside from the ease of transfer, pay on death accounts are appealing because you have access to the funds throughout your life and you can change the beneficiary or dissolve the accounts altogether if you so choose.