Avoiding Probate
We receive inquiries on a regular basis from individuals and couples asking how they can avoid probate. This is a very brief synopsis of how that can be accomplished.
Probate – When an individual dies owning property solely in his or her name, without a beneficiary designation, a formal procedure (“probate”) is usually required to determine to whom the property should pass. If there is a valid will, the property will pass according to its terms. If there is no will, the property will pass to the individual’s heirs at law. The intestacy laws of the State of California will determine who the individual’s heirs are and what they receive.
It is possible to legally pass property to another person without going through probate. Although it is often beneficial to avoid probate, because it can be costly and time consuming, these devices have pitfalls. Also, probate can at times be a good option depending on the situation. It is important to keep in mind that if you have beneficiaries properly listed on your assets, your assets will be distributed upon your death to those beneficiaries, without probate. These assets WILL NOT be distributed according to your Last Will and Testament.
Joint Tenancy – Adding another person to your assets as a joint owner, as “joint tenant with right of survivorship” will allow your property to pass to the other individual upon your death without the need for a probate proceeding. The obvious pitfall is that while you are alive the other owner has access to 100% of that asset, and the asset is subject to any claims of the co-owner and/or creditor of the co-owner. In addition, the other joint tenants will be required to join in on any transfer or re-finance of assets, such as real property, held in joint tenancy.
Beneficiary Designations – Adding Pay on Death beneficiaries (POD) to certain assets such as bank and brokerage accounts, unlike joint tenancy, allows you to name an individual to receive your property at your death without giving them any current ownership. The property will pass to the individual of your choice without going through a probate proceeding. One of the problems associated with beneficiary designations is that often times, the estate is not divided equally among the family, or pursuant to a plan, which was intended by the individual.
Revocable Living Trust – Revocable Living Trusts are documents wherein an individual or a couple, “Grantor” creates a trust instrument and names an individual(s) (usually themselves) or a bank as “Trustee.” The Grantor then transfers property to the Trustees who manage and distribute the property according to the terms of the trust, without probate. Unlike the addition of joint tenants or beneficiaries on your accounts, which may lead to conflict among family members, a Revocable Living Trust allows you to specify how you wish your property to pass. A Revocable Living Trust can also avoid certain adverse tax consequences associated with other forms of holding title.
Incompetency – If an individual becomes incompetent or decides that he no longer wishes to administer the trust assets for himself, the successor trustee named in the trust will step in to administer the assets of the trust for the benefit of the individual during his life. This process avoids a court conservatorship proceeding. In addition, a durable power of attorney can be used for the benefit of the individual to deal with assets not in the trust. This document can specifically state that changes can be to the trust, such as adding or changing beneficiaries, and to add or change beneficiaries on the individual’s accounts. The attorney in fact under a durable power of attorney has a fiduciary duty to act in the principal’s best interest, which includes following his testamentary wishes.
Other Probate & Trust Newsletters
Avoiding Probate in California
Funding Your Revocable Living Trust
Can I Have a Trust for My Pet? Yes!
“My Son In Law is a Big Fat Dummy.” Remedy: The Personal Asset Trust