As you begin exploring all of your estate planning options, one aspect of your planning you may have encountered is the concept of probate and probate avoidance. So what is probate? A simple definition is what probate is the court supervised process of transferring title of assets upon death. Take this as example. Let’s say you own a home. Your name is the only name on the deed. You have a living parent, brother, and 3 children. Upon your death, your brother decides that he will sell your house and help distribute the proceeds to your children. When your brother meets with the potential buyer, that buyer sees that your name is on the deed, not name of your brother. How does the buyer know that your brother is authorized to sell that property? Well, put simply, they don’t. If you have a will that names your brother as executor, or personal representative, your brother can file that will with the Register of Wills, the administrative arm of the probate court, along with the additional requisite paper work. Once your brother is appointed the personal representative he will receive Letters of Administration. The Letters of Administration authorize the personal representative to act on behalf of the estate. As the personal representative your brother will be required to continually report back to the probate court as to any expenses, income, or distributions of the estate.
All of this takes time, money, and the ability to navigate the probate court’s requirements. There are a number of ways to avoid probate.
- Joint ownership – the basic idea of joint ownership is that multiple people are the co-owners of a particular asset. Joint ownership can be used on real estate, bank accounts, and brokerage accounts. Both owners have full legal title during lifetime. This means that the assets may be subject to the co-owner’s creditors.
- Payable on death/beneficiary designation – many bank accounts and brokerage accounts allow the account owner to name a person or persons to receive the account balance upon the death of the owner. This type of designation does not give the payable on death designee any lifetime ownership. A payable on death designation can be an extremely effective tool to avoid probate. However, it can often cause problems if you do not want the recipient to have immediate control of the assets, such as in the case of a minor child.
- Trust ownership – Creating a trust is a different way of titling assets. By creating a trust and retitling assets into the name of the trust, there is no need to have court supervision of retitling the assets upon death. Trusts are extremely effective probate avoidance tools that provide a large amount of flexibility and the ability to create terms to provide alternative distribution terms to simply leaving the asset outright to the beneficiary.
In addition to the fees, bureaucratic procedures, and time delays of probate, the entire process is public record and open to anyone who would like to see the probate filings. In summary, probate can be defined as the court supervised process of changing title of assets. It is only necessary for assets that are solely titled in a decedent’s name. There are a number of options to avoid probate, each of which comes with pros and cons, and should be discussed at length with your estate planning attorney.
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