The probate court supervises estate matters, but there are some types of asset transfers that are not subject to probate. First, we should explain some things about probate so you understand why people often try to avoid it.
When an estate is being probated by the court, there are expenses that accumulate, and this reduces the amount of the inheritances that will be received by the heirs. There is also a waiting game, because the inheritors do not receive their inheritances while the probate process is underway. This will typically take somewhere in the vicinity of a year.
Have you ever wondered why you sometimes read about the way celebrities planned their estates? How does the press get this information? The answer is that probate records are available to the general public, so anyone that is interested can find out how you distributed your resources if your estate goes through probate.
Now that you know about the drawbacks of this process, we will move on and look at the types of asset transfers that would not be subject to probate.
Joint Tenancy With Right of Survivorship
The best way to describe joint tenancy with right of survivorship is through a simple example. Let’s say that you own a home, and you have one son that will be inheriting the property after you pass away. If you state these wishes in a last will, it would be admitted to probate. Your son would have to wait out the process before he could take possession of the home.
To get around this, you could add your son to the title or deed of your home. This is called the condition of joint tenancy with right of survivorship. After you pass away, your son would become the sole owner of the home, and the probate court would not be involved.
Life Insurance Proceeds and Individual Retirement Accounts
When you take out a life insurance policy, the company will transfer the proceeds to the beneficiary or beneficiaries if you pass away under circumstances that are covered. The probate court would not be a factor. And if you have an individual retirement account, the beneficiary would assume ownership of it after you are gone free of the probate process.
Payable on Death Accounts
Banks and some brokerages offer payable on death or transfer on death accounts. The way that it works is you add a beneficiary to the account when you open it. This individual would not have access to the funds while you are still living. After your passing, the beneficiary would obtain a death certificate and present it to the financial institution. The funds would be released, and this transaction would take place outside of probate.
Revocable Living Trusts
If you want to proactively implement a probate avoidance strategy, you could establish a revocable living trust. While you are living, you could serve as the beneficiary and the trustee, so you would maintain control of the assets that you signed over to the trust.
In the trust declaration, you would empower a trustee to assume the role after you die, and you would name your heirs as successor beneficiaries.
You would record instructions with regard to the way that you want the assets to be distributed to your beneficiaries after you are gone. When the time comes, the trustee would follow these instructions and provide distributions to the beneficiaries in accordance with your wishes. There would be no need to go through the time-consuming and expensive process of probate.
Some Words of Warning
This is factual information, but some of these methods, like joint tenancy and payable on death accounts, can be risky in certain ways. We urge you to discuss your situation with an attorney from our firm before you take action.
Attend a Free Seminar!
We are holding a series of seminars over the coming weeks, and you can learn a lot if you attend one of these sessions. There is no admission charge, and you can visit our seminar schedule page to get all the details.