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Protecting your heirs, your assets and your privacy

How life insurance and annuities can help you avoid probate and scam artists.

If you’re like millions of other avid e-mail users around the world, you’ve probably received a letter claiming that you are the long lost heir to someone’s fortune who recently passed away while living in a foreign country. Most of us immediately realize that these common phishing scams are merely schemes to extract information from us to abet criminals whose intent is to steal our identities—and eventually our assets.

Unfortunately, these crimes do not end when people die. In April 2012, ID Analytics released the results of a study that found that the identities of 2.5 million deceased people are used each year to apply for credit. Sources of this information include the federal government's Social Security Death Master File, as well as probate records.

Probate is the first step in the legal process of administering the estate of a deceased person, resolving all claims and distributing the deceased person's property under a will. The probate court determines the legal validity of a will and grants its approval by granting probate to the executor who then has the legal power to dispose of assets as specified in the will. Unfortunately, once it goes through probate, it’s also public record which anyone can access.

Fortunately, there are means to help protect your estate and heirs. Life insurance policies and annuities in particular provide an important, but often untapped, benefit when it comes to privacy and the disposition of assets. Probated wills are public documents, but life insurance and annuity polices are private contracts. They do not have to be mentioned in a will and do not normally pass through probate. As a result, as a supplement to your will, life insurance and annuity policies can be used to pass along assets with the utmost confidentiality and privacy intact.

Furthermore, most states have a probate exemption amount, the amounts vary, which allows a certain amount of property to pass free of probate.

Four Tools to Avoid Probate

There are other means that can allow you to avoid probate including beneficiary designations, gifting, joint tenancy, and living trusts.

Beneficiary Designations

Beneficiary designations under life insurance and annuity policies, including retirement plans (e.g. pension, profit sharing and 401(k) s and IRAs) avoid probate, because they constitute contractual or trust obligations, which specify the person(s) to whom the proceeds should be paid. In particular, using an annuity to fund a Roth IRA is a good way to pass along a large amount of money and retain privacy. While the Roth IRA has some eligibility standards, it allows people to pass on a large amount of money at death and avoid probate. Unlike a traditional IRA, you must start making withdrawals after you reach age 70 and a half, a Roth IRA has no mandatory withdrawals. That means you can let the account keep accumulating, income tax-free, until your death, when it will pass to the person you've named as the beneficiary.


Anything you give away during your lifetime doesn't have to go through probate. Making nontaxable gifts (up to $13,000 per recipient per year) can also reduce eventual federal estate taxes.

Joint Tenancy

Joint tenancy is a type of ownership in which two or more people share an interest in personal property or real estate. If the interest is as tenants in common, each person owns an undivided, but individual interest, which goes to his or her heirs at death.

If the interest is "with right of survivorship", the interest goes to the surviving joint owner. As a result, the surviving joint tenant only needs show a death certificate of the deceased joint tenant to claim ownership and avoid probate court. However, using joint tenancy can be tricky, so you should always consult your attorney or financial advisor before initiating any steps.

Living Trusts

The fourth way to avoid probate and maintain your privacy and confidentiality of your estate is through a living trust, so called because it is established during the lifetime of the person who creates the trust. There are two types of trusts: a revocable living trust gives the creator the right to dissolve the trust at any time and an irrevocable living trust cannot be dissolved by the creator.

Anyone can establish a trust even if your estate is small. There are, however, costs involved. You will pay fees to establish and manage a trust. Make sure your estate is large enough to justify those fees.

The Final Word

As with all important financial matters, you should always consult with your attorney, a trust officer or financial advisor before taking any steps concerning protecting your heirs, your assets and ultimately, your privacy.