How to Avoid Probate

Often, it is
said probate should be avoided.
Understanding why you may want to avoid probate and how to avoid probate
should help you determine if avoiding probate should be one of your estate
planning goals. Defining the term
probate is a good place to start.
Probate is a process that begins with filing a will with a court. The will becomes public and the court reviews
the will to determine if it is valid or invalid. In some cases, the court extensively
oversees the process of distributing assets which necessitates active attorney
participation. The extent of court
oversight and attorney participation goes down in a streamlined process now
available in most states called unsupervised probate. Even an abbreviated
probate process may prove undesirable, and if so, there are ways to avoid the
probate system entirely. Here are some of
those ways.
Pay-on-Death (POD) or Transfer-on-Death
(TOD) Accounts
One way to
avoid probate is to name one or more beneficiaries on your bank and brokerage
accounts. These instructions, sometimes
known as POD or TOD accounts, create a contractual agreement with the financial
institution specifying to whom the account transfers upon your death. You create these instructions by completing
documents provided by the institution for your signature in front of a
notary. Upon your death, the institution
transfers the assets to your designated recipient after the named recipient
completes appropriate claim forms and presents a valid certificate of your
death. If you choose this option, it is helpful if you leave a document
detailing the location of the TOD and POD accounts so your beneficiaries may
collect the assets.
Ownership of Property or JWROS
Another way
to avoid probate is to title assets jointly with another person. When you own property jointly with another
person, the property passes entirely to your joint owner if they survive you. You may designate more than one joint owner,
and if you specify all owners have rights of survivorship, the last surviving
owner owns the full property. You create
rights of survivorship in real property, in most states, by signing a deed in
front a notary and recording the deed in the county where the property is
located. Rights of survivorship in bank
accounts and brokerage accounts arise when you complete documents provided by
the financial institution identifying your joint owner or owners. Sometimes, the financial institution
identifies this type of account joint ownership with a “JWROS” notation.
If you give
assets away before you die, there will be no need to probate those assets
because you don’t own them on your date of death. Assuming you are comfortable financially with
giving up part of your wealth before you die, gifts will help you avoid probate. Gifting properly during your lifetime may
also minimize death taxes. Under current
federal law, you may give away up to $14,000 per recipient per calendar year
and married couples may give away up to $28,000 per recipient per calendar
year, doubling the gift value. If state
death tax laws apply, lifetime gifts may also prove helpful in reducing your
state death tax costs.
The most
complete way of avoiding probate is to create a living trust. You sign this document while you are alive
and change legal title of your assets from your individual name to the trustee
of your trust. Since you do not
individually own your assets, transfer of assets to your beneficiaries after
your death does not require probate court proceedings. In most instances, you
may act as your own trustee and continue to use all of your assets for your
benefit while you are living.
Probate may
be avoided with proper planning and advice.
To determine if your estate plan would benefit from using non-probate
transfer tools, please contact us for a consultation.