In the following article we will briefly define what probate is, why probate occurs and how to avoid it. Proper estate planning will provide alternatives to the probate process and save your heirs a lot of headache and stress (and potentially money). The key is to be aware of your alternatives to probate and plan accordingly.
THE WHAT, WHY AND HOW TO AVOID PROBATE!
Probate Defined: Probate is the legal process by which a Personal Representative of the estate of a decedent, under the supervision of a court, collects the assets of the decedent, determines and pays the decedent’s debts, and disburses the remaining assets to the decedent’s heirs.
Probate begins with a petition filed in Court informing the Court that a person has died and either filing the Will of the descendant or informing the Court that the decedent had no Will (i.e. died intestate).
Does a Will Avoid Probate?
Unfortunately, a last will and testament does not avoid probate. Instead, a Will can be used by the court to determine where your assets will go. The probate court will use your Will as a guide to help facilitate the probate process.
The Court then appoints a personal representative who collects the decedent’s assets, pays bills, and distributes the remaining assets to the decedent’s heirs, all under the Court’s supervision.
The probate process generally takes between a few months to a year (or longer in certain states such as California), and has the virtue of requiring claimants to present their claims to a Court which makes a final determination, or lose their rights to make claims against the decedent’s assets.
The shortcomings of probate process are that it is very public. The decedent’s assets and their value, and the decedent’s creditors are filed in Court, as are the decedent’s heirs and what each receives, and this information all a matter of public record.
Probate also entails court costs, attorney fees (often fixed by statute), and administrative expenses, although those can be minimized, especially in small estate through small estate administration rules applicable in most states.
Revocable Living Trust
To avoid these probate drawbacks, consider the adoption of a Revocable Living Trust.
A revocable living trust is a trust which holds your assets while you live and becomes irrevocable at your death.
You are the trustee and beneficiary while you are alive, so that you can deal with the assets freely. This allows you maximum control over your assets, so you can make appropriate decision and set up a proper asset protection plan.
But at your death the successor trustee, who you choose, takes control. The successor trustee can then pay your legitimate debts, and either distribute the remaining assets to your heirs in accordance with your wishes, or hold the assets for the beneficiaries you designate subject to the terms and condition which you set in the trust document.
One huge benefit of a living trust vs probate administration is the entire trust administration can be done without Court supervision, and the terms of the trust, and its assets are not made public.
The key with a trust or any other probate avoidance tactic is to properly title your assets. Without properly titling your assets, your assets may still end up in probate even though you have a living trust or other document.
Joint Tenancy with Right of Survivorship
Another Will substitute involves titling property in joint tenancy with right of survivorship.
Joint tenancy with right of survivorship is common for married couples in particular. It has the virtue of transferring the rights to property automatically at death to the survivor, without any further action required.
However, the document must be drawn properly to ensure that the ownership is joint with right of survivorship in the survivor of the first to die, as contrasted with a tenancy in common, where the survivor does NOT inherit the decedent’s interest in the property.
Also, state law is not uniform in this area, so you may need to consult with local counsel to ensure the property is titled properly.
Further, if you want to restrict the right of the survivor to deal with the property after your death (for example, to protect your children’s rights in case your widow/widower remarries) then you generally need a trust.
Certain assets allow you to designate a beneficiary. For example, life insurance policies and your 401k plan allow you to designate a beneficiary, which your take precedence over any will or trust document to the contrary.
For example, you can name you spouse as the beneficiary of your life insurance. You may also want to add your trustee of your living trust as the contingent beneficiary in case you spouse should predecease you and you fail to change your life insurance beneficiary designation.
Bank accounts allow you to designate a beneficiary via a payable on death account (POD).
Further, transfer-on-death (TOD) accounts are available for your non-retirement investment accounts.
Finally, many states have adopted transfer-on-death deeds (TODD) that allow you to transfer your real property to your designated beneficiaries upon your death.
The drawback to beneficiary designations vs a living trust is that if the beneficiary named dies before you, your assets may still be subject to probate if no contingent beneficiary is named.
There really is no better option than proper estate planning. Setting up a living trust and properly funding your trust by correctly titling your assets is a fantastic way to avoid probate and pass your estate on in the most efficient way.
Eric S. Ratliff, JD, LLM
Ratliff Law Firm
740 Pollard Road
Kodak, TN 37764
(865) 932-3441 x704