There are some simple ways you can avoid probate just by the way you title your property or by adding beneficiaries.
- Beneficiary Designations
Beneficiary Designations are the simplest and cheapest way to avoid probate. You can name beneficiary designations on all of your accounts including all forms of bank accounts, retirement accounts (IRAs and 401ks) and brokerage accounts. It is very important to keep beneficiary designations up to date, just as it is important to keep your Will up to date. As life changes you should make sure your beneficiary designations are up to date. Beneficiary designations control regardless of what your will says so it’s very important to make sure they reflect your wishes. For every account you have beneficiary designations can be added.
- Payable On Death Designations for Bank Accounts
You can add someone to your bank account as an owner or you can add them as a power of attorney. If you add them as a power of attorney they do not have a right to use the funds for their own benefit and the account would not automatically pass to them upon your death. If you want to designate individuals on your account to take the account upon your death you could add a Payable on Death designation to the account which allows you to name beneficiaries who take the account in the event of your death.
An obvious consideration when adding people to an account, whether as an owner or power of attorney, is whether there is a trusting relationship between or among everyone whose name is on an account. If another person is on the account as an owner then they can remove funds from the account, though many state laws say that this money belongs to the person who contributed the funds to the joint account. However, the person you name as a joint owner will likely receive the account upon your death even if your Will were to say that this account goes to a different person.
- Real Estate
Real Estate can be a non-probate asset depending on how it is titled. You can change the title of real estate relatively easily just by executing a new deed. Therefore there are several strategies for making sure real estate passes without the need for probate.
- Tenants in common
In tenancy in common, two or more individuals own undivided interests in property. When a tenant in common dies, the share of the property that the deceased tenant owned passes pursuant to intestacy or pursuant to the tenant’s Will. This interest is thus probate property. Therefore, if two people own a piece of property as tenants in common and one dies, the deceased owner’s ½ interest would pass through probate to the beneficiaries named in their Will or through intestacy if there is no Will.
A probate avoidance technique is ownership of property as joint tenants with right of survivorship. At the death of a tenant, the property passes automatically to the surviving tenant or, in the case of a joint tenancy with more than two tenants, to the surviving joint tenants equally.
- Joint tenancy with Right of Survivorship
This means that if two people own property together, the person that survives will own the property without the property having to go through probate. The language for the creation of a joint tenancy with right of survivorship—”as joint tenants with rights of survivorship, and not as tenants in common.” Upon the death of a joint tenant who owns property subject to a right of survivorship, the decedent’s interest passes automatically to the surviving joint tenant(s) in equal shares. Further, a joint tenant has the right, during life, under both the statute and common law, to sell or otherwise convey his or her interest in the property, thereby severing the rights of survivorship.
- Life Estate
A Life Estate Deed is also non-probate property. You have the life tenant who enjoys the benefits from the property during life and the remainder persons who take the property upon the death of the life tenant. This is an option for parents who want to leave property to children but retain the right to live in the property until they die. If the parent were to sell the property, the remainder beneficiaries would be entitled to the portion of the proceeds attributable to the remainder interest. This also creates some issues with liability and could subject the property to liens if a child were sued. You should discuss this with the client, along with the fact that client is giving up some control of the property. To sell the property they would need the remainder persons signatures.
Vehicles that are registered in the names of two persons joined by “or” are deemed to be held in joint tenancy with right of survivorship. In order to remove the decedent’s name from the title, the death certificate must be presented to the Division of Motor Vehicles. Vehicles registered in the names of two persons joined by “and” are deemed to be held by the co-owners as tenants in common. Thus the signature of each co-owner or the representative of his or her estate (executor or personal representative) is needed in order to transfer the title to the vehicle.
- Revocable or Irrevocable Trusts
You can create a revocable or an irrevocable trust which will pass assets to the desired beneficiaries without probate. The assets held in the trust are distributed according to the terms of the trust without going through probate. In order for a trust to operate like non-probate property, the trust has to be fully funded, meaning the assets have to be transferred to the trust during life or beneficiary designations have to be set up to pass the property to the trust upon death of the account owner. If real property is not transferred to the trust during the settlor’s life it will likely pass under the client’s “pour-over” will and therefore such real estate would be probate property.
- Last Will and Testament
Though a Will does not avoid probate it is extremely important to have a will and last testament. It won’t avoid probate completely, but its WAY better than not having a will.
A minor-children trust is very important when it comes to what will happen to your children (if they are under the age of 18). A Will allows you to name a guardian for your children, which is who will care for your children in the event you (and your spouse) are unable. It also allows you to appoint a trustee to hold your property for your children until they reach a certain age.
Information included in your will can reference safe deposit boxes, online accounts, cryptocurrency and other “hidden” items that may make it tough for loved ones to find after your death. Create your will right now.