People attempt to avoid probate for a variety of reasons. Some of these reasons include the perceived high costs of probate and the delay in transferring estate property. It is important to note that the probate process applies equally to testate and intestate estates. The simple act of failing to make a will does not avoid probate.
Although probate avoidance can be accomplished with a number of different methods, none of them are foolproof and should always be used in conjunction with a will.
Trusts are most commonly associated with probate avoidance. Trusts designed to avoid probate are typically established in conjunction with a ‘pour-over’ will that transfers all estate assets to the trust at the time of death.
The pour-over will names the trust as its sole beneficiary, which ensures that any property that is not in trust at the time of death will be subject to trust’s terms. Although this technique effectively transfers all assets to the trust at the time of death, it doesn’t avoid probate and can actually create an unnecessary burden by subjecting the estate to the rules of probate and the rules of the trust.
Although this technique is intended to avoid probate, it relies upon the owner’s ability to maintain his or her personal assets with respect to the trust. In order to function properly, the trust owner must transfer all or substantially all of his or her assets to the trust prior to death. Even when the estate is properly transferred to the trust during the owner’s life, the will is an essential part of this plan that must always be used.
Transfer on Death
Certain assets, such as bank accounts, can be legally titled to transfer to another person at the time of the current owner’s death. Similar to trusts, this technique is only as effective as the owner’s ability to continually maintain all of his or her assets in this manner. This method is also subject to the legal inability to title all types of property in this manner. Even where most of a person’s assets are titled in a manner that automatically transfers ownership at death, a will must be used to account for those items that cannot be titled in this manner.
Another method of probate avoidance is the outright transfer of property prior to death. Of all the methods used to avoid probate, it may seem that this method has the least vulnerability to error. However, as with all other aspects of life, simply giving property away can also lead to unanticipated complications.
For instance, I recently met with a woman named Janet who was selling three-fourths of her house. Unfortunately, Janet had been hoping to sell the entire property. In fact, she had recently entered a contract with some potential buyers who were just as anxious to own a complete house.
Although the clearest source of her predicament was an erroneous deed that now laid on the table between us, it became more clear as we discussed the possible solutions that much of Janet’s situation was actually based upon a misunderstanding of the intestate laws combined with an unjustified fear of probate.
The basis of Janet’s current three-fourths interest started about twenty-five years earlier when an unmarried, dating couple named Jack and Chrissy decided to buy their first house together. Thinking of the future, Jack and Chrissy took title to this property equally as joint tenants with the right of survivorship.