Most of my clients begin our initial meeting by telling me how long they have been putting off estate planning. They were never sure where to start, they were unsure of the fees, they did not know what lawyer to work with, they were worried it would all be so complicated, etc., etc. Fortunately, the process can be straightforward, painless and comfortable (and affordable!). When working with any individual or family, I work hard to make the process of preparing a Will or Trust understandable and straightforward as well as thorough and comprehensive. This generally begins with an open-ended first meeting where you can ask questions and I can better understand your goals and expectations. There is never a fee for this meeting. If we proceed, I work hard to carefully understand your needs and talk about potential approaches in plain English. This process usually ends up including a Will (and often a Trust) as well as a General Durable Power of Attorney, Health Care Power of Attorney and Advance Health Care Directive. Of course, every situation differs and I take great efforts to understand the unique nature of every family and every individual. In the end, preparing an effective and thorough estate plan does not need to be complicated.
How Do I Avoid Probate?
With proper advance planning, probate can be readily and entirely avoided. Several methods of asset transfer and titling can remove an individual’s property from the probate estate. Typically, a combination of these methods can be implemented to prepare a plan that (i) meets the needs of the individual/family, (ii) addresses other goals and intentions of their family legacy or gifting plan and (iii) wholly avoids probate administration. The following represent the major methods of probate avoidance:
1. Trust Formation. By forming a revocable living trust, the transfer of assets can avoid probate. When a trust is formed, most assets are transferred to the trustee of the trust (which is in most cases the owner/individual) for the benefit of that same owner/ individual during their lifetime. However, the key benefit of a trust is what occurs upon the death of the individual establishing the trust—namely, that the trustee’s rights and responsibilities are transferred to a new pre-determined individual (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. In short, because the owner’s property was held by the trust, probate is entirely avoided.
2. Joint Ownership / Right of Survivorship. Certain assets (particularly real estate) can be held as “joint” property whether between spouses or other individuals. When such is the case, when one of the joint-owners dies, the property would typically be transferred, in whole, automatically to the surviving owner. No probate would be required. However, if both joint-owners die, with no additional joint-owner, then the property becomes subject to probate with all other property.
3. Beneficiary Designations. 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. This process is relatively simple, and although not as comprehensive as some other planning, can be a great approach for some people.
4. Corporate Entities. Assets owned by a corporation or an LLC are not subject to probate. Understandably, the business entity does not “die,” but rather its ownership or control is transferred pursuant to the company’s operating documents. However, it must be noted that instruments representing company ownership interests (i.e. stock, LLC membership interest) can indeed be subject to probate and such matters should be addressed by other probate-avoidance mechanisms.
5. Life Insurance. Life insurance proceeds are typically not subject to probate administration. Naming a beneficiary of life insurance proceeds will result in the proceeds being transferred to such individual directly, completely bypassing the probate process. However, if a named beneficiary dies first or the policy is payable to naming “the estate of” a named person, the proceeds will indeed become part of the probate estate.
6. Very Small Estates are Subject to Minimized Probate. Very small estates can generally bypass the lengthy probate process. If the total assets of the decedent do not exceed $40,000, an “affidavit of small estate” is filed with the probate court, much of probate’s formality is dispensed and the process is typically shorter and less costly.
Probate is both costly and time-consuming and often presents a difficult procedural headache for surviving family members. In some limited instances probate may be preferable—but these are very much the exception. On the whole, it is typically advisable to take the necessary steps to avoid probate altogether, but the following represent the advantages and disadvantages of probate:
Length: typically 7-12 months from death to discharge of the estate and many times longer. In most cases, probate simply cannot be administered in less than 7 months.
Cost: between legal fees, courts costs, notice and publication fees, probate often costs between 4% and 10% of the gross estate
Hassle: length/cost (as mentioned above) but the inherent court procedure, potential hearings and court filings require ongoing attention for several months
Privacy: probate is public record, accessible to any and all
While in some exceptional circumstances probate may be desired, we typically plan to avoid it completely. At Schleiffarth Law Firm, LLC we work with each client to create an estate plan that matches their goals and avoids the time, cost and headache of probate.