Certain assets can be held as “joint” property whether between spouses or other individuals. Often, when one of the joint-owners dies, the property may be transferred, in whole, automatically to the surviving owner—without going through probate. However, the manner in which joint ownership is set up will determine whether this is indeed the case. If not set up carefully, the deceased owner’s portion could indeed be part of their probate estate. Additionally, if all joint-owners die, with no additional joint-owner, then the property would likely become subject to probate with all other property. The use of joint accounts can make a lot of sense and be a valuable tool for some types of assets, especially between spouses, but every situation is unique. Comprehensive estate planning, utilizing all available planning tools, will usually result in the best, simplest and most desirable outcomes.
Certain assets can be transferred by a “beneficiary designation.” Such assets typically include life insurance policies, independent retirement accounts (IRAs) and employee benefit plans (401k plans, etc.) as well as some financial accounts. Similarly, real estate can be transferred by a “beneficiary deed” which transfers the property to the named recipient automatically upon the death of the owner. By utilizing this type of planning, ownership will be transferred automatically to a named beneficiary. For various reasons, this often does no adequately replace trust-based planning but can be utilized to supplement more comprehensive planning.
By forming a revocable living trust, one can readily avoid probate. When a trust is formed, the creator of the trust would normally transfer most (or all) of their assets to the trustee of the trust (which is in most cases that same owner/individual) for the benefit of that same owner/individual during their lifetime. Accordingly, during the creator’s lifetime, the trust would not usually have any impact on control or use of the assets.
However, the key benefit of a trust is what occurs upon the death of the individual establishing the trust. Upon death, the trustee’s rights and responsibilities are transferred to a new pre-determined individual (usually appointed by the initial owner) and the assets of the trust are distributed (or retained for the benefit of successor beneficiaries) in whatever fashion has been laid out in the trust document by the owner. This often involves distribution to family members or other beneficiaries but it could be whatever the trust creator has established in the trust agreement.
In short, because the owner’s property was held by the trust, probate would be entirely avoided. The trustee takes control of trust property and manages and distributes the assets pursuant to the written trust agreement and no court involvement would normally be needed.
Probate is both costly and time-consuming and often presents a difficult procedural headache for surviving family members after the death of a loved one. In some limited instances probate may be preferable—but these are definitely the exception. Overall, it is typically advisable to take the necessary steps to avoid probate altogether and here are the major reasons why:
- Length: typically it takes 7-12 months (or longer) from death to discharge of the estate. In most cases, probate simply cannot be administered in less than 7 months.
- Cost: between legal fees, courts costs, notice and publication fees, probate can cost between 4% and 10% of the gross estate.
- Hassle: length and cost (as mentioned above) and the inherent court procedure, potential hearings and court filings require ongoing attention for several months.
- Privacy: probate is public record, accessible to everyone.