An introduction to the most popular methods.

Payable-on-Death Bank Accounts

Payable-on-death bank accounts offer one of the easiest ways to keep money – even large sums of it — out of probate. All you need to do is fill out a simple form, provided by the bank, naming the person you want to inherit the money in the account at your death. As long as you are alive, the person you named to inherit the money in a payable-on death (P.O.D.) account has no rights to it. You can spend the money, name a different beneficiary, or close the account.

At your death, the beneficiary just goes to the bank, shows proof of the death and of his or her identity, and collects whatever funds are in the account. The probate court is never involved.

If you and your spouse have a joint account, when the first spouse dies, the funds in the account will probably become the property of the survivor, without probate. If you add a P.O.D. designation, it will take effect only when the second spouse dies.

Retirement Accounts

When you open a retirement account such as an IRA or 401(k), the forms you fill out will ask you to name a beneficiary for the account. After your death, whatever funds are left in the account will not have to go through probate; instead, the beneficiary you named can claim the money directly from the account custodian.

If you’re single, you’re free to choose whomever you want as the beneficiary.

If you’re married, your spouse may have rights to some or all of the money:

• If you have a 401(k) account, your spouse is entitled to inherit the money unless he or she agrees, in writing, to your choice of someone else.
• If you live in a community property state, chances are your spouse owns half of what you have socked away in a retirement account. (Community property states are Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington, and Wisconsin; in Alaska, couples can sign an agreement making some or all of their property community property.) If any of the money you contributed was earned while you were married, that money remains “community property,” and your spouse owns half.

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