Probate is a legal procedure where a court (often a specialized probate court) oversees the distribution of a person’s property upon death. It's a common part of estate planning, even if the deceased has left behind a will. If there is no will (the person died intestate), the state’s probate law will control property distribution to the deceased person’s next of kin.
While probate has a reputation for being lengthy and expensive, it can be avoided. You can have your remaining assets passed directly to your beneficiaries by implementing some savvy tips. Understand why it can be beneficial to avoid probate and learn the various ways to do so.
Why would you want to avoid probate?
There are several reasons that avoiding probate can be a smart estate planning move.
- Time-consuming. Even with a well-planned executor or personal representative, probate can take months or even years to complete.
- Expensive. The costs typically involved in probate include filing fees, newspaper publication charges, the estate executor’s cut, and attorney fees. Lawyers tend to charge a percentage of the estate’s value, which can dent the amount that gets passed on to beneficiaries. Also, the longer the process, the more expensive it can become.
- Creates public records. Probate also makes the deceased person’s finances a matter of public record. This includes the nature and value of assets, the person’s debts, and who will get the assets. This can be a concern for those wanting to keep their personal finance matters private.
- Adds stress. The lengthy nature of the probate can create undesired stress for all.
- Delays the distribution of assets. The process of verifying a will, gathering assets, and paying off debts takes time and can delay the distribution of your property to your loved ones. And, if you own property in multiple states, you will have to undergo probate in each state, increasing the timeline and asset transfer process.
How to avoid probate: 10 options
Determining how to avoid probate requires looking at how ownership of property is currently set up and making any necessary changes. It also often involves tax considerations. One or more of these methods may be used to avoid probate.
The good news is that it’s not expensive to avoid probate: It just requires some planning and appropriate legal guidance. An estate planning lawyer can help you decide which method, or combination of methods, is best for your situation.
1. Create living trusts
To avoid probate, most people create a living trust, commonly called a revocable living trust. It is “revocable” because you may revoke it at any time. In a living trust, the trust is the owner of the assets and not you. Thereby, assets in the trust can skip probate. Another advantage of living trusts is that they help ensure more privacy, unlike creating a will.
To create a revocable living trust, you execute a document creating a living trust as a separate entity from you. And then, you, as the person writing the trust (grantor), must "fund the trust" by transferring the property you choose into it. You fully control the property while you are alive.
Upon death, a person you appoint as your successor trustee assures that the property is transferred to those you designate as trust beneficiaries as per the trust document. This transfer does not require probate. The successor trustee will also manage the trust if you become mentally incapacitated.
An irrevocable living trust (most often used for estate tax planning and asset protection) also avoids probate but requires the person creating it to give up the right to revoke it.
Attorney’s fees for setting up a trust are substantially more than for drafting a will. However, depending upon the value and complexity of your property, the legal fees in setting up a living trust can be less than the cost of probate.
2. Establish joint ownership for non-real estate property
Joint tenancy, while most commonly used for real estate property, can apply to other assets as well, such as financial accounts and securities. Just like jointly owned real estate, if one owner dies, the title passes automatically to the remaining owner.
Again, it must be clear that survivorship rights were intended. Financial accounts (bank accounts, brokerage accounts, savings accounts, and investment accounts) have a title document to indicate ownership in the same manner as real estate.
As with real estate, a joint owner acquires certain rights in the property. For example, if you make your daughter a joint owner of your bank account, she typically has the right to withdraw money, even without your permission.
3. Leverage beneficiary designations
For banks, certificates of deposits, and similar financial accounts such as IRAs or 401(k)s, an easy way to avoid probate is to designate someone as a beneficiary in the event of death. This is called pay-on-death (POD) and is generally preferable to joint ownership of the account since the POD beneficiary has no rights to the account until death occurs.
It’s easy to change any financial account, like a savings account, into a POD account; you just have to inform your financial institution or policyholder that you wish to name a beneficiary. Designating a beneficiary is simply a matter of filling out a simple form provided by the bank or other financial institution. Upon death, the funds are paid to the designated beneficiary, and the account is closed.
For pay-on-death accounts, you may designate two or more joint beneficiaries (upon death, the funds are divided between them), but you may not designate successor beneficiaries (where the funds go to A, but if she is dead, then they go to B). To accomplish this, you would need to make a last will or a living trust.
4. Use transfer-on-death securities
Transfer-on-death (TOD) is another way to bypass probate and streamline asset transfer from government bonds, mutual funds, stocks, brokerage accounts, securities, and other security-related holdings. The Uniform Transfer-on-Death Securities Registration Act, which all states except Louisiana and Texas have adopted, allows you to designate a beneficiary and specify the percentage of your assets they’ll receive upon your death.
As with POD designations, TOD designations may provide for joint beneficiaries but not successor beneficiaries. Likewise, named beneficiaries have no access or control over assets before the owner's death.
5. Use transfer-on-death for motor vehicles
In some U.S. states, a TOD beneficiary designation is allowed for the transfer of motor vehicles, like cars, trucks, and even small boats. In states allowing TOD for motor vehicles, you can name a beneficiary on the vehicle registration form. If you miss that step, contact the department that handles vehicle titles in your state. They can provide you with the necessary information and forms to designate a TOD beneficiary.
There are some limitations and restrictions to this method. For instance, you can only name a primary beneficiary and no contingent beneficiary. Also, if you live in a community property state that allows for beneficiary designations, you must get written permission from your spouse to list a third person as a beneficiary.
As of 2024, beneficiary designations for motor vehicles are allowed in Arizona, Arkansas, California, Connecticut, Delaware, Illinois, Indiana, Kansas, Maryland, Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Jersey, Ohio, Oklahoma, Texas, Vermont, and Virginia.
6. Take advantage of small estate provisions in the law
Many states have simplified or expedited probate procedures for estates under a certain value, for certain types of property, or if everything is left to a surviving spouse.
- Small estates. The majority of states have some sort of exemption for very small estates. The definition of “small estate” and properties that qualify under the term tend to vary by state. In some, it may mean $50,000, while in others, it can be $100,000. Some states also allow small parcels of real estate without any debt to be passed as a small estate. However, in others, like New York, any real estate asset warrants a full probate procedure.
- Simplified procedures. Some states also have a “shortcut” process for small estates or estates with just personal property (no real estate). To qualify for a small estate, you must meet your state’s criteria, which could include showing a certified document highlighting the estate value.
- Spouses inherit everything. If you leave everything to your spouse in your will, it’s possible to avoid probate. But this doesn’t apply to assets in a trust. Spouses inherit everything. If you leave everything to your spouse in your will, it’s possible in some states to avoid a full probate process.
While utilizing small estate measures, remember that they are subject to varying state laws.
7. Use transfer-on-death for real estate
Some states allow your real estate investments to escape probate using a simple alternative—the execution and recording of a transfer-on-death deed. The TOD deed must be signed, notarized, and filed in the land records office where the real estate is. With this TOD deed, you are basically moving the real estate ownership to the beneficiary, but you retain full control while you are alive. After your death, the ownership passes immediately.
As of 2024, a TOD beneficiary designation is provided for real estate in Alaska, Arizona, Arkansas, California, Colorado, the District of Columbia, Hawaii, Illinois, Indiana, Kansas, Maine, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Ohio, Oklahoma, Oregon, South Dakota, Texas, Utah, Virginia, Washington, West Virginia, Wisconsin, and Wyoming. If you don’t see your state on the list, check with an estate attorney for the latest updates, as more and more states are offering this effective alternative.
8. Establish a joint ownership for real estate
Joint real-estate ownership, with right to survivorship, is another simple and easy way to avoid probate. If one owner dies, the title passes automatically to the surviving owner. But, there are a number of risks and tax considerations for going this route, so be sure to consult with an attorney. There are three types of joint ownership with survivorship rights:
Joint tenancy with rights of survivorship. A form of owning property that gives people equal rights and ownership of real estate. The owners are “joint tenants” of the property, and the survivor takes full ownership upon the other owner's death.
Tenancy by the entirety. This is the same as joint tenancy with rights of survivorship, but it only applies to joint ownership by married couples. In this arrangement, each spouse automatically gets 100% ownership of the property instead of 50%. Not all states recognize tenancy by the entirety. As of 2024, 25 states accept this form of joint ownership.
Community property with right of survivorship. This form of joint ownership, only for married couples, is only available if you live or own property in Alaska, Arizona, California, Idaho, Nevada, Texas, or Wisconsin. Each spouse gets automatic rights of survivorship.
For any of the above to be applicable, the real estate deed must be appropriately titled with clear right of survivorship. For example, the deed should state, “James Smith and Robert Jones, as joint tenants with rights of survivorship,” but be sure to consult with an attorney before doing so. ”
If it is not clear that survivorship rights were intended, it is typically assumed that a tenancy in common exists. Tenancy in common does not avoid probate, and the interest of a co-owner who dies is part of their estate and passes to their heirs.
One drawback to joint ownership is that the person you make a joint owner acquires certain rights. For example, if you make your son a joint owner of your house, your son must agree to the sale or mortgage of the property. Other possible drawbacks or limitations include:
Upon the death of an owner, half (or all) of the asset may be considered part of the deceased person’s estate for estate tax purposes.
Adding another person as an owner may trigger the federal gift tax if the value of the property exceeds a certain amount. There are also property tax triggers as well.
The property may be subject to judgment creditors or the claim of a divorcing spouse.
9. Make a will
Although it is possible to avoid probate for much of one’s property, especially items of large value, it is difficult to make all property out of the reach of probate. For smaller items, like jewelry, furniture, or collectibles, that can’t be kept out of a probate estate, a will is advisable.
A will does not avoid probate, but it is an important part of an estate plan that can minimize the cost of probate. When there’s a valid will with a named executor, the court just has to verify the will and grant the executor their official responsibilities to administer the estate. Having a will saves time, which, in turn, reduces costs. Your assets also get distributed as per your intentions and not the court’s order.
10. Gift property
One simple way to avoid probate is to "gift" or transfer property before you die, because if you don’t have ownership over it, it doesn’t have to undergo probate. While you can’t give away all of your property because you will need some of it to live on, gifts can be part of your overall estate plan strategy.
The main drawback to a gift is that you no longer have the use of the property. If you intend for the gift to be the recipient’s share of your estate, and you don’t clearly state this in writing, the recipient may be able to claim a share of any property that needs to be probated.
Also, if a gift exceeds a certain amount, the federal gift tax may apply. An estate attorney can help identify this exclusion amount.
Special considerations
As with all things legal, you must consider other factors to ensure your estate plan aligns with your wishes while avoiding probate and other complications.
- IRAs. There are ways to transfer an IRA and extend the time when the funds must be distributed (and become taxable to the beneficiary). This tax advantage is especially important if the beneficiary is not a spouse, but the living trust must contain certain language to accomplish this outcome. For any retirement account beneficiary planning, be sure to consult with a tax and/or estate planning professional to learn about the various options and risks in choosing beneficiaries.
- If you are married. Marriage can change your estate planning implications. A spouse has rights in various types of property, especially real estate and IRAs, so be sure to consult with a professional
- Same-sex couples. In states that do not recognize same-sex marriage, avoiding probate through tenancy by the entireties or community property is not available. However, joint tenancy with rights of survivorship would still be an option, as well as the other methods of probate avoidance. There are also other tax implications to consider for same sex couples, so be sure to talk with an attorney.
FAQs
How much does probate cost?
Probate costs can typically range from 3% to 7% of the estate's value. The estate earnings, location, and complexity can raise the costs.
What is the benefit of avoiding probate?
This court procedure can be time-consuming, expensive, and can delay asset transfer. It can also create unnecessary stress for your loved ones. With that said, the expense, time, and difficulty of probate court vary by state, and there is always the added benefit of having supervision of the process by a judge.
Who oversees the probate process?
A judge oversees the process, and the administrative tasks are carried out by an executor or estate administrator. They can enlist the help of a probate attorney to provide legal advice and handle much of the probate work, like identifying assets and settling debts.
Edward A. Haman, Esq., contributed to this article.
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