One main goal of the estate planning process is to avoid probate. However, for an unmarried individual or someone wanting to leave an asset to a non-spouse, avoiding the Massachusetts probate process could end up being more costly. The tax advantages that a surviving spouse receives upon the death of a spouse do not exist for any other beneficiary.
Therefore, making beneficiary designations on accounts such as insurance policies and retirement accounts can end up costing either the estate or the third party a significant amount of money in taxes. It is possible, however, to minimize the tax exposure. When designating an individual’s estate as the beneficiary on these types of accounts, the monies can be put to better use. For instance, if an account is left to the estate, any taxes assigned to the estate will be available from the proceeds of the account. Further, if the beneficiary owes the taxes, the estate could save both the estate and the beneficiary in taxes, even if there are additional probate costs.
A joint accounts with a right of survivorship may also seem like a good way to avoid probate, but this potentially raises some concerns as well. Regardless of the intention that the account is to be used only by the person that opened it, the joint owner may lawfully access the account at any time. This leaves the account vulnerable to unwanted withdrawals by the joint owner and is also subject to the claims of creditors of that individual. If the joint owner gets divorced, is sued or owes money to a government agency, the account is considered the property of that person and is, therefore, subject to attachment.
For these and other reasons, letting assets go through the probate process may not be such a bad idea. It is not always more advantageous to avoid the probate process in every instance. Massachusetts residents, especially those who are unmarried or want to leave an asset to a third party, could benefit from a thorough review of all options before making a final decision as to the manner in which they wish toi proceed
Source: thestarphoenix.com, Avoiding estate probate costs can create complications, Terry McBride, Dec. 16, 2013
