Taking Care of Business: How to Pass Your Bank Accounts to Your Kids Probate-Free…

Dear Mr. Miller:

I have three bank accounts, each between $100,000 and $150,000.  I don’t want my one adult child to have to go through Probate when I pass.  I know there is a Small Estate allowance in California to avoid Probate.  Will I qualify?

Trying to Take Care of Business

The Fast-Track Affidavit (And Who Actually Qualifies)
The $208,850 Trap–Math Matters in Estate Planning
Joint Accounts and Beneficiaries–Easy Fixes with Hidden Risks
Strokes and Argentina–The Hidden Risks of Simple Bank Forms
The Living Trust–Total Control, Total Peace of Mind–BUT
Next Steps–Finding the Perfect Fit for Your Family

Dear Trying:

You are correct, California does have a Small Estates Procedures Act.  There are actually numerous methods to avoid Probate.  A few of the better known are Joint Tenancy (or with bank accounts often referred to as multiple party accounts), Living Trusts, and Pay On Death Beneficiary accounts.

The Fast-Track Affidavit (And Who Actually Qualifies):  Where someone has not used one of the above methods, then in California, and many states, there are several small estates allowances approaches.  The one to which you refer is the Affidavit method.  It provides for an allowance of $208,850, which would have normally had to go through Probate, to pass without it.  The amount adjusts every three years according to the Consume price Index changes.  All the successor, presumably your adult child, needs is the affidavit (readily available on the internet by searching for “Affidavit California Probate Code 13100”), the account information or at least your name and social security number (so the bank can run a check without the account number), and identification for himself (generally a driver’s license).  With those items, he should be able to go into the bank and take control of the account in a half hour.  Occasionally, the bank will want to send everything to their legal department to make sure it is all up to muster, but that is not the norm.

The $208,850 Trap–Math Matters in Estate Planning:  But in your situation, you have somewhere between $300,000 and $450,000.  The amount is cumulative, not per account, so your situation would not qualify.  So you may want to follow one of the other approaches.  Each one has its advantages and disadvantages.

Joint Accounts and Beneficiaries–Easy Fixes with Hidden Risks:  You can change the account title at the bank to name your child as a co-owner quite easily.  We rarely suggest this as if your son gets sued for an auto accident or anything else, any amount above your or his insurance liability limit may subject your bank accounts to that lawsuit.  Not a pleasant thought!  And what if your child dies before you do?   Probate!

Strokes and Argentina–The Hidden Risks of Simple Bank Forms:  You can add your child as a pay on death beneficiary.  This is done at the bank.  He would have no rights until you die.  But what if you don’t die but instead have a stroke and lose mental competence.  The beneficiary designation will not help.  What if your child predeceases you?  Without a beneficiary to whom to pay the account balance. The bank will insist on Probate even if your Will specifies to whom the amount should be paid.

Combined with the pay on death beneficiary approach, you can add your child as an attorney-in-fact.  This is also done at the bank.  This allows your child to take action if you cannot due to incompetence.  However, it also allows the child to draw out all of your money and take it to Argentina and lead a merry life even if you are not incompetent.

The Living Trust–Total Control, Total Peace of Mind–BUT:  This is generally the best of all of the options.  It provides for a beneficiary after you die and probably will provide for a beneficiary even if your child predeceases you.  It provides for someone (successor trustee) to manage your affairs if you become incompetent. But it usually, and most often, should be prepared by an attorney.  So there is an expense.  And it should be reviewed periodically with that attorney to make sure everything is up to date.  And there is usually an expense, although typically not large, to have that review.

Next Steps–Finding the Perfect Fit for Your Family:  So there are many methods and you need to decide on which one.  Give us a call at 760-436-8832 so we can figure out together which method will be best for you.