To better understand how to avoid probate. It is important to first understand why you should seek to avoid probate. Let’s start by defining some terms.
Probate: the process by which an asset (that has not been otherwise predesignated) passes from a decedent to that decedent’s heirs. The part of that sentence in parenthesis is pretty important. That’s because, if an asset is predesignated to pass to an individual, it avoids probate. In other words, we already know to whom the asset is supposed to go, so we don’t need to go through the probate process to determine the rightful owner. Without pre-designation, we have a bunch of assets and we have to figure out the proper recipient.
That determination can be convoluted and controversial to say the least. You might be thinking to yourself: “doesn’t a will clear all of this up?” The short answer is no. The long answer is that there’s two reasons why the answer is no. 1. The will does not actually take effect until some has passed away and a court of competent jurisdiction determines that the purported will is in fact the decedent’s last will and testament; and 2. Because the will does not take effect until the aforementioned point, naming an heir in the will is not pre-designation. That’s not to mention the fact that will can be challenged even once they are accepted by a court.
So why avoid probate? It’s long, it’s expensive, it extends the grieving process, and people can sue, challenging the will. Probate can take anywhere from six-months to two-years, depending on a number of factors (like a will challenge). Most of the time, the process is rather confusing, and you generally have to have some help if you’ve never done it before. That’s especially true if you’re the executor and want to avoid any liability. Finally, you want to avoid probate because it’s the opportunity for creditors to come in and take part or all of the heirs’ inheritance. Creditors tend to be medical creditors like nursing homes, hospital bills, and Medicaid.
Now that you know why you should avoid probate, let’s talk about how to avoid it. I mentioned pre-designation above. Essentially this means situating an asset in such a way that it passes immediately to someone named as beneficiary or someone whom you’ve given right of survivorship. However, not all assets are the same. So, it’s not as easy as naming a beneficiary for every individual asset you own. Luckily, trusts take care of that problem.
Trusts are awesome tools. It’s essentially a pot with pre-designated beneficiaries. Thus, anything you put into that pot is likewise predesignated to go to those beneficiaries. Thus, anything in the pot passes outside of probate.
But what if you don’t go the trust route? After all, a trust may not be right for you. Again, it depends on the asset.
Let’s look at most people main assets. Financial accounts such as checking, savings, IRAs, investment accounts etc. can all have beneficiaries assigned to them (pre-designation). Car’s and anything with a title can have a joint owner with right of survivorship. Lastly, real property can pass outside of probate in a number of ways, depending on how you set up the deed.
When drafting your estate plan, one of your goals should be probate avoidance. Save your loved ones the headache and risk. If you have questions about probate avoidance, give us a call at (704) 259-7040 or visit our website at www.mcelderlaw.com.
Brenton S. Begley
Elder Law Attorney
McIntyre Elder Law
“We help seniors maintain their lifestyle and preserve their legacies.”