HOW TO AVOID PROBATE
As your estate planning attorney, I can help you weigh the pros and cons of probate and give you an idea of the probate costs and time frames. Avoiding probate may save expense from the probate process however you may be losing valuable tax savings. For example you will lose the step up of basis exposing your heirs to capital gains taxes they may not otherwise have to pay. Additionally, if you are not careful you may pass with some assets still titled in your name and your estate may still have to go through the probate process. However, if you decide you want to avoid probate, here are the principal ways to do it:
1. Create a revocable living trust (RLT) and transfer your assets into it. If you name yourself as the trustee, you will keep control over the assets. You can amend or revoke the trust at any time. When you die, the assets pass to your beneficiaries outright or in trust as you have specified in the trust document without going through probate. This method gives you the most flexibility but is the most expensive.
2. Hold property with one or more other persons as joint tenants with rights of survivorship. When you die, your interest in the property passes to the other joint tenant without the need for probate. Joint tenancy has a number of potential drawbacks. You and the joint tenant will have equal ownership rights in and access to the property and you cannot revoke a joint tenancy. If the property is real estate, all joint tenants need to agree on property management decisions. If the property is a bank account, any joint tenant can withdraw the entire balance.
3. Execute a transfer or pay on death document for financial accounts and securities. With a pay on death or transfer on death account, when you die, the subject property passes to the beneficiary named without going through probate. The beneficiary has no right to the funds in the account while you are alive.
4. Complete beneficiary designations for life insurance and retirement accounts naming someone other than your estate. If your estate is the beneficiary, the funds will need to pass through probate. Similarly, if you don’t complete your beneficiary designations, on your death, insurance proceeds and the balance in your retirement accounts will pass to your estate and will require probate.
5. Give property away to your intended beneficiaries before you die. Any property you don’t own when your die will not need to be probated. Making gifts while you are alive can also be an effective strategy for reducing estate taxes, although very few estates are large enough to incur estate taxes.
Notice that a will is not included in this list. Disposing of probate assets in a will does not avoid probate.
In some cases, you may need more than one of these options to fully avoid probate. If you decide that you want your estate to avoid probate, I can help you choose and implement the most appropriate methods for your property and estate planning goals.