Category: Estate Administration and Probate

Jul 26 2013

Avoiding Probate Doesn’t Always Require a Trust

I hear a lot of people talk about wanting to avoid probate, and they generally have different reasons for wanting to do so. Some of the reasons that I hear are:

  • Concerns about the cost of probate, both filing fees and attorney’s fees
  • Concerns about the time that it will take to distribute the assets
  • Concerns about the public nature of probate
  • Leaving different amounts to different beneficiaries

The most common way to avoid probate is through a trust. That is something that we can, and have prepared. And trusts serve many valuable purposes. However, there are other ways to avoid probate, at least for many assets.

  • Transfer on Death provisions – Most brokerage houses and banks will allow you to designate a beneficiary to take over the account on your death. I sat down with a financial planner today who told me that this is probate-avoidance method is underused, and misunderstood.
  • Joint accounts – While there are some risks to this (such as potential attachment from creditors of either account holder), if you want the beneficiary to enjoy the benefits of the money before death as well as after, you can name a joint account holder. As long as the account is created as joint, “with right of survivorship,” then on death, the beneficiary will get it.
  • Named Beneficiaries – Some accounts, and most insurance policies, will allow you to name a beneficiary of the account. This works almost identically to a transfer on death designation, but will sometimes be used instead.

Both Transfer on Death and Named Beneficiary accounts can be changed at any time, joint accounts are permanent.

One other way that people ask us about is transferring the house as a gift while the resident is still alive. While there may be reasons to do it, in general, transferring property as a gift during life can be a bad idea for tax reasons. When you give a house (or anything else) as a gift, the recipient is credited with the house being worth the amount at the time that you bought it – just like you are. So when he tries to sell it, he will pay income tax on more profits. On the other hand, if he receives it at or after death, then the tax value of the house is increased to the value on the date of death.

While probate is not as difficult as it once was, and avoidance is not necessary in nearly as many cases now as it once was, when that is a goal, there are a few ways to do so. A trusted adviser can help you figure out what is best for you.

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