People sometimes confuse avoiding probate with avoiding intestacy. If you don’t leave a Will, you die in a state that is called “intestacy.” This means that your statutory heirs will inherit your estate. However, even if you have a Will, your Will will not avoid probate. It will have to be probated and the Court direct the manner in which your beneficiaries receive their inheritance.
- Top way to avoid probate: A Trust
If you create a trust and put all your assets into the Trust, you will avoid the situation where your heirs must probate your estate to inherit property and assets from you. That is because the Trust owns everything – you don’t. Therefore, when you die, the Trust still owns everything. The Trust document then tells the trustee what to do with the assets, which usually includes transferring them to your beneficiaries. If properly structured, all of this can be done without court supervision known as probate.
- Second top way to avoid probate: Joint Tenancy with Right of Survivorship
Married couples often avoid probate when the first of the couple dies because everything is titled jointly with right of survivorship. When the first of the couple dies, the assets are automatically the sole property of the remaining spouse. This, however, does not allow avoidance of probate when the second spouse dies or the spouses die together. Therefore, it is not a fool-proof method of avoiding probate.
- Other ways to avoid probate
These last ways are mechanisms that individual assets are passed to your heirs without probate. If, however, you have assets that don’t fall into these categories, you may end up with some of your assets passing without probate, while others must be probated.
- Life Estate Deed – This is where you essentially give your heirs your real estate, but you keep the right to occupy it for your lifetime. Be careful doing this, however, because you may be causing your heirs a situation where taxes on capital gains will be due upon the sale of the property after your death. Don’t do this without consulting your accountant or an attorney knowledgeable about tax.
- Payable Upon Death or Transfer on Death – often you can designate your bank accounts or stock accounts to be paid to certain persons upon your death. This is not always available for every bank account or stock account, so make sure you get the proper information from your financial institution.
- Placing your assets in the joint names of you and your heirs – This works just like it does for couples; however, you must realize if you do this that you are putting your assets at risk of being used by your heirs during your life or being accessible to their creditors. Again, it also may create a tax situation where your heirs are liable for capital gains taxes.
The bottom line is before you do any of these things and think you are home-free, you should consult an Estate Planner and/or your accountant.
