Dear Jonathan: My wife and I jointly own all of our bank and brokerage investment accounts. If my understanding is correct, when one of us dies, there will be no probate required because these accounts are in our joint names and the survivor of the two of us will retain ownership in all of those accounts. Is this correct? If so, should the survivor of the two of us create a trust and transfer those accounts to that trust to avoid probate when the second one of us dies?

Jonathan Says: As for your first question, your assumption is correct, i.e., when a husband and wife own bank and brokerage accounts in joint names, the death of one of them will not necessitate a probate; the survivor retains full ownership of those accounts.

Your second question asks whether the survivor of the two of you should set up a trust to hold those investment accounts after the first one of you dies so that at the second spouse’s death those investments will not need to be probated. The survivor of the two of you can certainly set up a trust and transfer your investment accounts to the trust to avoid probate at his or her death.

The better plan, however, would be for the two of you to establish a trust now which would protect you in the event of a common death. As it stands now, if the two of you died at the same time or one of you died shortly after the other, there would be a probate of those investment accounts because they would be owned by the last one of you to die. By establishing a trust now and retitling the ownership of those accounts to the trust now, you would avoid probate in the event of a common death or upon the death of the survivor of the two of you because those accounts would be owned by the trust at that point and not by the two of you or the survivor of the two of you.

If you prefer not to name your trust as the owner of any of your accounts at this time, you can still avoid probate by naming the trust or any individual or individuals for that matter, as the beneficiary or beneficiaries of any of those accounts through a TOD (transfer on death) designation. Consequently, you could retain ownership of those accounts in your names while alive but upon the death of the last one of you to die, those investments would pass directly to the named beneficiaries on those accounts without first having to go through probate.

If you choose to go the TOD route now for your investments and you want to name individual beneficiaries to receive those investments when the second one of you dies, it still might make sense to establish a trust for the purpose of owning any other assets you might have. For example, if you live in a state which does not allow real estate to be transferred through a beneficiary deed, then in order to avoid probate of that real estate upon the death of the last one of you to die you would have to retitle the ownership of that real estate to your trust during your lifetime. You could also avoid the probate of that real estate by gifting the property to someone else or adding someone else’s name to the title, but those typically are not the best ways to handle the transfer of real estate.

Further, in addition to real estate, you may have other assets which you want to retitle to the trust for probate avoidance or certain assets, such as life insurance, for which you may want to name the trust as the beneficiary of rather than an individual.

Another reason to have a trust is to provide for younger beneficiaries who you do not want to receive your assets at too early of an age. For instance, if you want your investment accounts to go to certain individual beneficiaries but they are not of an age to receive those assets now, you could establish a trust naming them as the beneficiaries of that trust and then name the trust as the beneficiary of your investment accounts pursuant to a TOD designation. In the trust you can direct at what ages those beneficiaries are to receive your assets, including your investment accounts, which you would not be able to do if you had simply named those individuals as the direct beneficiaries of those investment accounts.

I suggest that you and your wife meet with an estate planning attorney who can discuss these various issues with you and make a recommendation as to how best to move forward. Good luck.

Jonathan J. David is a shareholder in the law firm of Foster, Swift, Collins & Smith, PC, 1700 East Beltline, N.E., Grand Rapids, Michigan 49525.

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