We would like to think that, if we were to plan for the care and well-being of or loved ones, through one or more estate planning vehicles, our family and friends would receive the benefits of our estate plan shortly after our death, with no hassles or hang-ups.
Such an effortless transfer of property is not always possible. But you can make sure your wishes for taking care of your loved ones are more promptly and accurately carried out is by arranging your estate so that you may avoid the process of probate.
"Probate" is the name of the administrative procedure by which a deceased person's estate is distributed to beneficiaries and heirs. Probate occurs in cases where the deceased person left a valid will (in legal terms, died "testate") or did not leave a will ("intestate").
Your probate estate is the total of all property owned by you at the time of your death, plus property acquired by your estate after you death.
If you die testate, the probate court is supposed to distribute your assets to your beneficiaries in accordance with the directions in your will. If you die intestate, your home state's succession guidelines determine the distribution of your property to your heirs. In many cases, following the state intestacy guidelines will result in a distribution that is contradictory to your wishes.
Whether you die with or without a will, your probate estate can be subject to an expensive, contentious, time-consuming process that may result in your wishes not being honored.
Probate involves not only the person chosen as the administrator (also known as the "personal representative " of the executor) of your estate, but also any people--such as attorneys, accountants, realtors, stockbrokers, etc.--that the administrator might hire to help in the probate process. The services of these people can end up being very expensive. Avoiding probate can dramatically decrease these expenses.
However, avoiding probate does not does not guarantee that you will avoid attorneys fees completely. You will probably want an attorney to help you with setting up joint tenancy, creating a living trust, and other actions to avoid probate. However, the costs in attorneys’ frees of avoiding probate are very likely to be less that the costs of going through probate.
The probate process can be a very antagonistic ordeal, with friends, family, and administrators disagreeing over your assets, debts, and other aspects of your probate estate. Avoiding probate means avoiding many of these battles.
Part of the contentious nature of probate is the fact that unlike a living trust, which is privately administered, probate is a very public affair. You may wish to retain your privacy and decrease the possibility of an openly public struggle among family and friends over the disposition of your estate.
Probate can take several months or sometimes years. From the filing of the application or probate, to the collection of data to calculate your assets and debts, to the filing of an inventory with the court, to the payment of your debts, to filing of your final income tax return, and (finally) to a distribution of the remaining assets, the probate process can drag on, and all the while your assets are essentially "frozen" and cannot be transferred.
There are several ways to avoid probate. Consider using a “non-probate” transfer in order to have as little in your probate estate as necessary. There are several ways of doing this. Each method essentially tries to limit the amount of your probate estate. You should choose the method with which you feel most comfortable.
Joint Tenancy (or Tenancy by Entirety)
One way to avoid probate altogether is to make arrangements to have no property at all titled solely in your name, and that this co-ownership includes the “right of survivorship." Thus is called “joint tenancy.” When this arrangement applies to married couples, it is called "tenancy by entirety."
For instance, if a two people (say, you and your child) were to co-own all property--real estate, bank accounts, stock and insurance accounts, and pension accounts--then upon the death of the first person, all the property passes directly to the surviving owner without probate.
Since joint tenancy results in the previously sole owner giving up control of the property, you should enter into such an arrangement carefully.
During your lifetime, you can transfer property to others and thus make sure that such property is not part of the probate process after you die.
However, there are generally limits on the type and amount of gift you can make (for example, $14,000 per calendar year to a relative); otherwise, your lifetime gifts (also known as "inter vivos gifts") may be subject to a gift tax as well as income tax. It is also important to note that a gift may not be returned.
Payable on Death (POD) Accounts
Sometimes, the assets in stock accounts and even bank accounts can be paid directly to a named beneficiary at the time of your death. These accounts, known as payable on death (POD) or transfer on death (TOD) accounts. These accounts not only can be used to avoid probate, but they do not carry the risk of lack of control that occurs in joint tenancy.
A living trust allows you as the grantor to decrease the value of your “probate estate”--the total value of the all the property in which you hold an interest at the time of your death. You, as the "grantor," can create a living trust by naming the trustee (who has duties and obligations relating to handling the property) and the beneficiaries (who receive the benefits of the property).
Although you could always name yourself as trustee of your estate, doing so would not avoid probate, since the property in a living trust needs to be titled in the name of the trustee. Therefore, in order to avoid probate you should choose another person as a trustee and transfer title of the property to that person.
While a living trust is almost always more expensive to draft than a last will and testament, it is also almost always less expensive than going through probate.
If you live in Michigan and need experienced estate planning help, contact Michael Einheuser for a free consultation. Michael helps families in Bingham Farms, Troy, Farmington Hills, Rochester Hills, Southfield, West Bloomfield Township, Bloomfield Township, and the surrounding Michigan areas.
Schedule your Free Consultation today: (248) 398-4665.Return from the avoid probate article to the home page by clicking here.