In this video, I discuss estate planning and designed beneficiaries as covered in the tax compliance and planning CPA exam.
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Estate planning involves carefully managing how your assets will be distributed after your death, and understanding the legal ownership of these assets is crucial. This is important because different ways of owning and designating beneficiaries can have significant financial consequences, particularly in terms of probate fees.

Probate is the legal process through which a deceased person's estate is properly distributed to heirs and designated beneficiaries. It often involves court costs, attorney fees, and accountant fees. These costs can be quite high, reducing the total amount available to be passed on to the heirs.

A will is a common tool used in estate planning. It lays out how a person, known as the testator, wants their assets to be distributed after they pass away. However, it's important to note that not all assets are necessarily covered by a will.

Certain assets, such as life insurance policies, retirement accounts, brokerage accounts, and bank accounts, often have their own beneficiary designations. These designations specify who will receive these assets upon the owner's death. Crucially, these beneficiary designations take precedence over the instructions in a will. This means that even if a will states that an asset should go to a certain person, if the beneficiary designation on the account names someone else, the account will go to the named beneficiary.

Furthermore, some of these assets may not be part of the probate estate. This means they can be transferred to the designated beneficiary without going through the probate process. This bypassing of probate can be both a strategic estate planning tool and a source of potential complications, especially if the will and beneficiary designations are not carefully coordinated.


When a person dies, all the assets they owned at the time of death make up their estate. However, not all of these assets go through the probate process. The probate estate specifically includes those assets that don't have mechanisms in place to pass them directly to a beneficiary.

Certain types of assets are typically excluded from the probate estate. These include:

Assets with Beneficiary Designations: These are assets like life insurance policies or retirement accounts where a beneficiary is named directly in the policy or account.

POD (Pay on Death) and TOD (Transfer on Death) Assets: These are arrangements where assets automatically transfer to a named person upon the owner's death.

Joint Tenancy with Rights of Survivorship: This refers to property that is co-owned in such a way that when one owner dies, the surviving owner(s) automatically inherit the deceased owner's share.

Assets Owned by a Living Trust: A trust is a legal entity that can own assets, and assets in a trust typically pass to beneficiaries without going through probate.

A living trust is an important tool in estate planning. It's a legal document that allows a person to set out how they want their assets to be handled after their death. The key advantage of a living trust is that it avoids the probate process, which is the court-supervised process of distributing a deceased person's estate. This can make the transfer of assets to beneficiaries quicker and more straightforward.

For a living trust to be effective, assets must be formally transferred into it. This process is known as retitling - changing the ownership records of the assets to show that they are now owned by the trust. This transfer needs to happen while the person who created the trust (known as the trustor) is still alive.

However, not all assets are suitable for inclusion in a living trust. Retirement accounts, for example, are generally not placed in such trusts. This is because transferring these accounts into a trust can trigger early withdrawal penalties and other complications. Most other types of assets, including real estate, bank accounts, and stocks, can be included in a living trust.

Once the trustor passes away, the responsibility for managing and distributing the trust's assets falls to a person named in the trust document, known as the trustee. The trustee's job is to follow the instructions laid out in the trust document regarding how and to whom the assets should be distributed. This role is crucial for ensuring that the trustor's wishes are carried out after their death.

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