The goal of estate planning for most people is avoiding probate. Why? Because probate can be expensive and it can take a long time to go through the entire process. Every estate, regardless of its size, is required to pass through probate so that the heirs or beneficiaries can receive their inheritances. Whether avoiding probate is the right thing for you depends on many factors, so discuss this decision with your probate lawyer. If you decide you want to bypass the process, here is a guide to avoiding probate.
Is it possible to avoid probate entirely?
There are so many options out there for your estate plan that it is, not only possible but relatively simply to avoid probate. Some common avoidance techniques include Revocable Living Trusts, Joint Ownership of Property, Pay-on-Death Accounts, and Gifts. If the goal of your estate plan is to ensure that your assets pass to your heirs, without the time and expense of going through the probate process, then one of these options may work for you. If you are curious about how these methods work, here are the basics.
Revocable Living Trusts
One of the primary purposes of a living trust is to allow individuals to get around probate. Although a trust is very similar to a will, a trust provides certain advantages that a will does not. For example, a trust can hold valuable property which does not become part of your estate upon your death. That is because the trustee actually owns the property, once it is successfully transferred into the trust. So the trustee owns the property – not you. However, for federal estate tax purposes, the property is still part of your estate. Trusts still provide the opportunity to decide exactly how your property will be distributed upon your death. At that time, the trustee will easily and quickly transfer the trust property to your chosen beneficiaries, without going through the lengthy probate process.
Joint Ownership of Property
Avoiding probate can also be accomplished through joint ownership. This is how joint ownership works: when the first owner passes away, the surviving owner will automatically retain ownership in that property. This happens without the need for probate. There are several types of joint ownership. Joint tenancy with right of survivorship is the type that will allow your property to transfer automatically.
You can also avoid probate by converting certain financial account, such as banking and retirement accounts, into pay-on-death accounts. This process is usually very simple. In most cases, all you need to do is complete a form naming a beneficiary of those accounts. That way when you die, the money will be transferred automatically to the person you named, without the need for probate. This same procedure can be used for transferring ownership in vehicles and certain securities. The beneficiaries on the applicable registrations need to be changed. You can also draw up a special deed that would allow you to transfer your real property by naming a beneficiary in the deed document itself.
Transferring through gifts
Gifting your property while you are still alive is another easy way to avoid probate. Simply put, if you no longer own the property at the time of your death, then the property would not go through probate as part of your estate. You can significantly reduce the size of your estate by gifting your personal possessions before your death, instead of waiting for them to be distributed after your death. Most gifts are tax-free, depending on the value of the gift.
How to avoid the appearance of a fraudulent transfer
In order to avoid the appearance of making fraudulent transfers, you must be proactive. This means that your asset protection plan must be completed before a creditor’s claim or legal judgment is made. Essentially, it is the timing of the transactions that matters. But, be sure to actually convey the assets at the time the asset protection plan is established, or else, it will all be for nothing. Remember, even if you have no intention to avoid a debt, you can still be suspected or accused of fraud.
The consequences of fraudulent transfers
One common misconception is that, if you are accused of making fraudulent transfers, the only consequence is that the asset transaction is canceled or undone. That is not the case. In fact, there can be very serious consequences, including attorney’s fees, court costs, and even in some jurisdictions, criminal charges. Also, not only the debtor will suffer these consequences, but also, anyone deemed to have aided in the fraudulent transfer.
If you have questions regarding probate avoidance, or any other estate planning needs, please contact the Schomer Law Group for a consultation either online or by calling us at (310) 337-7696.