One of the big, sexy topics these days is avoiding probate. Many people want to avoid probate for many reasons.
They have heard that probate is an expensive, lengthy, public process that unnecessarily drags out the suffering of their heirs.
And for many individuals, regardless of the size of their estate, this is true. When my Mother passed away last year, she had a modest estate. But even so, we had to probate her will and for many reasons, it took longer than my siblings and I would have liked.
Some people believe that using a trust is the only way to avoid probate. But in actuality, this is one of the several methods that can be used to avoid probate.
Here are some other ways that you can avoid probate without using a trust:
1. Put your property into joint tenancy with right of survivorship
One of the most common ways to avoid probate, especially with real estate, is to make sure the property is jointly titled with “rights of survivorship”. However, there are also several drawbacks to using joint tenancy as an estate planning tool. If avoiding probate is your goal, you should talk to an estate planning attorney before you decide to title your property this way.
One of the reasons that this using a right of survivorship is a tenuous estate planning tool is that it does not provide any protection if you become incapacitated. In other words, if you were in an accident and fell into a coma or persistent vegetative state, your name would remain on the deed until you passed away.
In the interim, the co-owners (perhaps your spouse) of the property would be forced to file a guardianship with the court if they needed to sell or mortgage the property. Not to mention, this could cause problems with Medicaid planning.
2. Use payable on death (POD) or transfer on death (TOD) provisions
There are advantages and disadvantages to using transfer on death provisions with your bank accounts. The clear advantage to using these provisions is that it is an easy way to transfer your money while avoiding probate. But the advantages stop there.
There are numerous disadvantages to using a transfer on death provision in conjunction with your bank accounts. Like a right of survivorship, nothing can happen with the bank account so long as you are still alive. In other words, if you are incapacitated your funds will remain locked up unless you pass away or a court order allows your beneficiaries to access your funds. If your heirs need these funds to pay your living expenses, mortgage, hospital bills, etc. then they would have no way to access your accounts without a court order.
Second, there are times when these bank accounts may be required to pay for expenses immediately after your death, such as your funeral and/or memorial service. This was an issue when my Mother died. She left my siblings and me as the TOD beneficiaries on her bank accounts, but we were unable to access those accounts for several weeks after her death. In the meantime, there were expenses that needed to be paid. Fortunately, we had the means to pay for her funeral without the need to access her money, but many other people aren’t so fortunate.
3. Properly update your life insurance and/or retirement account beneficiaries
First, if you have named minors as the beneficiaries of your accounts. Minors cannot legally hold funds in their name alone. So if you leave a large life insurance policy to a minor child, then it will require expensive court supervision to manage those funds. A financial guardian would be appointed, and a lawyer or trustee would be required to manage those funds and report to the court on their use.
Second, if for some reason you failed to name a beneficiary on your policies or retirement accounts, then the custodian of those policies may look to the probate court for guidance on how to divide those funds. Keep in mind, this is not common but it is possible.
4. Don’t have anything left in your estate when you die
I say this somewhat in jest, but it’s true. If you don’t have any money left in your estate, then your family will have nothing left to administer through the probate process. This is virtually identical to transferring your assets into a revocable trust.
When older individuals engage in Medicaid planning, a big part of this process is transferring their financial assets out of their individual name so that their assets are not counted against them for purposes of qualifying for Medicaid.
While I don’t recommend not having any money left when you die, unless there is a legitimate legal reason for getting rid of your financial assets, this is certainly one way to avoid the burden of probate for your family.
What To Do If You Have More Questions About Avoiding Probate?
If you have more questions about how to avoid probate, or even if you should avoid probate, please feel free to reach out to estate planning attorney James Hart at (919) 460-5422 or via our online contact form.
We would be more than happy to answer your questions and schedule your wealth planning session ($350 value) for no cost.