Guide to Avoiding Probate

Probate is the legal process through which a deceased person’s estate is administered and distributed. While it ensures that assets are distributed according to the decedent’s will (or state law if no will exists), probate can be time-consuming, costly, and public. Fortunately, there are several strategies to avoid probate, ensuring a smoother and more private transfer of assets to your beneficiaries.

1. Revocable (Living) Trusts

   • A revocable trust, also known as a living trust, is a legal document that places your assets into a trust for your benefit during your lifetime and provides for how those assets will be distributed upon your death.

     There are significant advantages to creating a revocable trust. Namely, assets in a revocable trust bypass probate, you maintain control over the assets while you are alive, and the distribution of assets upon your death is private and efficient.

2. Joint Ownership with Right of Survivorship

   • Joint ownership allows two or more people to own property together. When one owner dies, the property automatically passes to the surviving owner(s) without going through probate.

   • Joint ownership, however, does not allow you to place assets in trust for your beneficiaries which would allow for a controlled distribution of assets and protect those assets from your beneficiary’s creditors. Further, if your joint owner predeceases you, you are then the sole owner of the property, and that property would then be subject to probate upon your death. As such, joint ownership delays probate rather than avoids it altogether.

3. Payable-on-Death (POD) and Transfer-on-Death (TOD) Accounts

   • POD and TOD accounts allow you to name beneficiaries to receive your assets directly upon your death (commonly associated with checking and savings accounts).

   • Although these accounts are simple to establish, like joint ownership, asset distributions are outright rather than in trust, and if your designated beneficiary predeceases you, the indicated transfer on death is ineffective, which would then cause the account to be subject to probate upon your death.

4. Beneficiary Designations

   • Certain assets, such as life insurance policies, retirement accounts (IRAs, 401(k)s), and annuities, allow you to name beneficiaries directly.

   • Beneficiary designations can be easily updated, so it is essential that you review them on a regular basis to ensure they remain effective and match your objectives.

5. Gifts During Lifetime

   • Transferring assets as gifts during your lifetime can reduce the size of your estate and thus avoid probate for those assets upon your death.

   • It is important to keep in mind the rules and regulations regarding reporting gifts to the IRS, and that you understand that once you make the gift, you lose all control and benefits from the transferred assets.

6. Small Estate Procedures

   • Many states offer simplified probate procedures for estates that fall below a certain value threshold, allowing for a more efficient distribution of assets.

   • Small Estate Thresholds vary significantly from state to state. For example, the small estate thresholds for California, Minnesota, Nevada, and North Dakota are as follows:

     • California: $184,500

     • Minnesota: $75,000

     • Nevada: $25,000 (or $100,000 if claimant is the surviving spouse)

     • North Dakota: $50,000

Avoiding probate can save time, money, and maintain privacy for your heirs. By setting up a revocable (living) trust, establishing joint ownership, utilizing POD and TOD accounts, naming beneficiaries directly, making lifetime gifts, or taking advantage of small estate procedures, you can ensure an efficient and timely transfer of your assets. Consulting with an estate planning attorney can help you implement these strategies and ensure that your estate plan is effective.