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Friday, June 14, 2013

What can I do to avoid Probate?

WHAT CAN I DO TO AVOID PROBATE?

There are three main ways to avoid probate: joint ownership, beneficiary designations and trusts. Most individuals have a combination of all three techniques.

Joint Ownership

Joint ownership occurs when two or more individuals hold the title to the same property. Joint ownership comes in several flavors. Joint ownership with right of survivorship and tenancy-by-entirety are the two types of joint ownership that allow the property to pass outside of probate. Tenancy-by-entirety is a special type of joint ownership with right of survivorship available only to married couples (which, in addition to probate avoidance, provides creditor protection from creditors in some cases).  In both instances, when one of the owner passes away, his or her share automatically (without court’s involvement) passes to the remaining owner(s). In contrast to joint ownership with right of survivorship, property that is held as tenants-in-common gives you title only to a share of the property and does NOT allow the property to pass outside of probate. Therefore, it you are planning to use joint ownership as a technique to avoid probate, you should make sure that the property is held with right of survivorship or as tenants-by-entirety. 

Joint ownership is not always a good idea for two reasons: liability and control.  For example, if you own something jointly with another person, the creditors of that person can go after the property and attach their interest to such jointly-titled property (unless it is owned as tenants-by-entirety). Furthermore, if you hold property jointly, you will no longer have exclusive control over the property. For example, if you and your child are joint owners of a bank account, your child is free to withdraw the entire account.

Beneficiary Designation

A beneficiary designation is a useful and free way to avoid probate.  Beneficiary designations can be applied to life insurance policies, retirement accounts, bank accounts and similar custodial arrangements.  Such designation notifies the institution that holds the assets for you of who the next-in-line owner of the assets is.  The important distinction from joint ownership is that the beneficiary will have no control over the assets until you have passed away. For example, a retirement account in the decedent’s individual name that has the children designated as beneficiaries will not require probate.  As a matter of fact, once such designation is in place, the designation determines the distribution of the property and not the Will.  Similarly, a bank account can become a “transferable on death” (TOD) or a “payable on death” (POD) account if the current owner adds a beneficiary to that account. A POD account will automatically pay the proceeds to the beneficiary. 

Trust

Trust is an entity that holds, manages and distributes the trust property in accordance with the trust agreement, a documents that specifies the beneficiaries, their rights and entitlements. Generally, a trust is a more expensive way to avoid probate.  Additionally, in order for the trust to be funded, certain assets have to be re-titled into the name of the trust.  However, it may be the only option for probate avoidance for certain assets, such as real property that you do not wish to hold jointly with anyone else. A revocable trust is a flexible structure that can hold your assets.  Because the assets will no longer be in your individual name, the assets that are in the trust will not have to go through probate. A revocable trust is not a public document (unlike a will which must go through the probate process). Rather, trust administration is a private process that avoids the costs and the delay of probate in its entirety.

As mentioned above, most individuals and families use a combination of all three techniques in order to accomplish their estate planning goal and avoid probate. Please contact if you have any questions or would like to discuss these techniques further.





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