How to Keep an Estate Out of Probate

Probate is the legal process used to administer assets that remain in a person's name after death. Depending on the state, probate can involve court filings, creditor claims, administrative expenses and delays before beneficiaries receive their inheritances. Not every asset has to pass through probate, however. How property is titled and the beneficiary designations on financial accounts can determine whether an asset is subject to court administration.

Keeping an estate out of probate requires more than simply signing a will. A will generally directs the distribution of assets that become part of the probate estate. Other planning tools can transfer assets directly to beneficiaries or place them under a trust's control.

Use Beneficiary Designations Where Appropriate

Many financial accounts can pass outside probate through beneficiary designations. Retirement accounts, life insurance policies and certain bank and investment accounts can name individuals who will receive the assets after the owner's death.

Payable-on-death and transfer-on-death designations can provide a straightforward way for certain accounts to pass directly to named beneficiaries. Because these designations generally control the account's transfer, coordinate them with the rest of the estate plan.

An outdated beneficiary designation can create problems even when a person's will is current. Review beneficiary forms after major life events such as marriage, divorce, the birth of a child, or the death of a beneficiary.

Consider Joint Ownership Carefully

Property owned jointly with rights of survivorship can generally pass to the surviving owner without going through probate. This can be useful for married couples and other people who intentionally want an asset to transfer automatically when one owner dies.

Nevertheless, establish joint ownership carefully. Adding someone to an account or property can affect ownership rights during life and may have tax, creditor, Medicaid, or family consequences. It can also produce unintended results if the owners' relationship changes.

The goal should be to use joint ownership when it fits the overall estate plan rather than treating it as a universal way to avoid probate.

A Living Trust Can Hold Assets Outside Probate

A revocable living trust is another common probate-avoidance strategy. When assets are properly transferred to the trust during the owner's lifetime, the trust, rather than the individual, owns those assets. At death, the successor trustee can generally administer and distribute trust property under the trust's terms without putting those assets through probate.

A trust only works for assets that are transferred into it or otherwise coordinated with it. Creating a trust document without retitling the appropriate property can leave assets outside the trust and potentially subject to probate.

A pour-over will can provide a backup for assets not transferred to the trust. However, those assets may still need to pass through probate before being distributed under the trust.

Keep Your Estate Plan and Accounts Coordinated

Avoiding probate is largely a matter of coordination. A person may have a will, trust, retirement accounts, life insurance, jointly owned property and payable-on-death accounts, all governed by different transfer mechanisms.

Those pieces should work together. For example, naming one person as the beneficiary of a retirement account while a trust provides different instructions for the same assets can create an estate plan that does not operate as intended.

Regular reviews are especially important when you buy or sell assets, open accounts, change beneficiaries, or move property between states. The plan should reflect how assets are titled rather than relying solely on the documents prepared years earlier.

Probate Avoidance Should Serve a Larger Plan

Avoiding probate can simplify the transfer of some assets. However, it should not be the only objective of an estate plan. Probate-avoidance techniques can have consequences for taxes, creditor protection, long-term care planning, control over inherited assets and beneficiaries' needs.

For some families, a trust may provide benefits beyond avoiding probate. For others, beneficiary designations and appropriate ownership arrangements may accomplish the intended transfer without the additional structure of a trust. The appropriate approach depends on the assets involved, the family circumstances and the laws of the relevant state.

Key Takeaways

• Not every asset goes through probate: Beneficiary-designated accounts, certain jointly owned property and properly funded trusts can generally transfer outside the probate process.
• Beneficiary forms matter: Retirement accounts, insurance policies and other accounts may be distributed according to their beneficiary designations rather than the instructions in a will.
• Trusts must be properly funded: Creating a living trust does not automatically move assets into it, so ownership and title should be coordinated with the trust.
• Probate avoidance is only one goal: Estate planning should also account for taxes, long-term care, creditor concerns, beneficiary needs and control over inherited assets.

Legacy One Law Firm, APLC is an estate planning and probate administration law firm in Los Angeles, California, serving families throughout the State. We help individuals and families establish living trusts, wills, powers of attorney, advance healthcare directives, and other essential estate planning documents designed to protect their loved ones and preserve their legacy. Schedule a quick and easy consultation with estate planning attorney Sedric E. Collins, Esq., or call 323-900-5450.