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How to Avoid Probate: Techniques for Avoiding Probate

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How to Avoid Probate: Techniques for Avoiding ProbateOnce people understand what probate is and its downsides, it’s not a surprise that their next question is oftentimes how to avoid probate.  Fortunately, there are a number of available techniques for avoiding probate.   With careful planning, probate avoidance can generally be accomplished without too much difficulty.

How to Avoid Probate

There are a number of techniques for avoiding probate, each with its own advantages and disadvantages.  However, keep in mind that not every technique to avoid probate is available in every state.

Techniques for Avoiding Probate

Some of the most common probate avoidance devices include the following:

Joint Tenancy with Right of Survivorship

Assets owned in joint tenancy with right of survivorship will pass by operation of law at death to the surviving joint tenants.  However, additional estate planning may be required to avoid probate on the surviving tenant’s death.

Tenancy by the Entirety

This is similar to joint tenancy with right of survivorship but may only be used by married couples.

Gifting

If you don’t own an asset at death, there is obviously no need for it to be probated since you’ve already given it away.

Now that the gift and estate tax applicable exclusion is $5.25 million (adjusted for inflation), most people won’t have to worry about paying gift tax.  However, keep in mind that there are plenty of other techniques for avoiding probate that don’t involve giving away your property!

Contract/Beneficiary Designation

Assets such as IRAs, life insurance, and annuities generally pass at death to the listed beneficiary.

However, probate may not be avoided if the estate is designated as the beneficiary or if there is no living beneficiary named.  Naming a primary and contingent beneficiary may help prevent this.

Transfers in Trust

A trustee has legal title to assets in a trust.  At death, assets pass according to the provisions in the trust agreement.

Payable on Death and Transfer on Death Designations

Assets with these types of designations will pass to the designated recipient at death and avoid probate.

Probate Avoidance by Asset Type

Available techniques for avoiding probate vary by asset.  Some of the more common probate avoidance devices for various types of property are listed below:

IRAs:  Name a beneficiary (and contingent beneficiary)

Real Estate:  Hold property in joint tenancy with right of survivorship (or as tenancy by the entirety if owners are spouses) or transfer title to a revocable living trust.

Life Insurance:  Name a beneficiary (and contingent beneficiary)

Savings AccountsHold property in joint tenancy with right of survivorship (or as tenancy by the entirety if owners are spouses), transfer title to a revocable living trust, or name a payable-on-death beneficiary.

Money Market AccountsHold property in joint tenancy with right of survivorship (or as tenancy by the entirety if owners are spouses), transfer title to a revocable living trust, or name a payable-on-death beneficiary.

Checking AccountsHold property in joint tenancy with right of survivorship (or as tenancy by the entirety if owners are spouses), transfer title to a revocable living trust, or name a payable-on-death beneficiary.

CDs:  Hold property in joint tenancy with right of survivorship (or as tenancy by the entirety if owners are spouses), transfer title to a revocable living trust, or name a payable-on-death beneficiary.

Brokerage AccountsHold property in joint tenancy with right of survivorship (or as tenancy by the entirety if owners are spouses), transfer title to a revocable living trust, or name a transfer-on-death beneficiary.

Annuities:  Name a beneficiary

Seeking Professional Advice to Avoid Probate

Due to the downsides of probate, avoiding probate is a wise goal for many people.  However, not every technique for avoiding probate may be right for every situation or person.  Techniques to avoid probate can cause unintended tax and legal consequences in certain cases if one is not careful.

Planning to avoid probate does not always have to involve assistance from a lawyer.  For example, you can easily name beneficiaries on your own, title assets as joint tenancy with right of survivorship on your own, and even create your own trust using an online service such as Nolo.

However, an estate planning attorney brings professional expertise and can help consider whether avoiding probate is appropriate for you, and if so, which techniques are appropriate in light of your greater estate planning goals.  The appropriate steps for you and your family will depend on your goals and unique circumstances.  If your affairs are complex, I highly recommend using an attorney.

Final Thoughts on Avoiding Probate

As part of your estate planning, review your beneficiary designations and titling of assets to see your exposure to probate.  Make sure these are kept up to date and that you name contingent beneficiaries.  It is especially important to review these after significant life events, such as a divorce or birth of a child.

During my career I’ve seen a surprising number of people fail to properly transfer title of assets to a trust or name beneficiaries.  Despite their good intentions, these assets were subject to probate.

Remember that avoiding probate isn’t a one time thing that you can check off your list and forget about.  It’s important to understand how to take ownership of assets in the future and to review your estate plan from time to time.

Additional Probate Information

For additional information about how to avoid probate or estate planning in general, consider the following books:

What are your thoughts about how to avoid probate?  What techniques for avoiding probate have you used?  Leave a comment below!

Image: alexskopje/bigstock

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