Justin, I’ve heard about trusts and avoiding probate, but why can’t I just add my children as co-owners or death beneficiaries on my assets? Wouldn’t that avoid probate too? – Douglas
Douglas, Thank you for your question. You raise a good point—there is more than one way to avoid probate court. Adding co-owners or death beneficiaries to bank accounts and real estate is a way to do that. However, there are several potential problems with those options.
If you add your children as co-owners on an asset, that asset is considered their asset as much as it is yours. If they happen to go through a divorce, a bankruptcy, or any other legal problem, your asset is put at risk.
The other option—adding children as death beneficiaries—also comes with risks. Although you hope this would never happen, if a child dies before you do, grandchildren you may have wanted to receive the property may get left out. Or if there are no surviving beneficiaries, your assets still end up in probate court. Also, naming children directly as beneficiaries does not give any protection to them. If, at the time you die, your child is going through any sort of legal trouble, their inheritance could be lost.
Setting up a trust does require a little more work from you now, but it can save your family a lot of unnecessary stress and expense. In a trust, you can specify what happens to your assets if one of your children predeceases you. You can also leave your children their inheritance in a protected way, so if they are having legal problems when you die, their inheritance is safe.