How To Avoid Probate: It Is Possible!

Take an inventory of everything you own; life insurance, IRAs, 401ks, Stocks, Bonds, Mutual Funds, Real Estate, Business Interests, Bank Accounts (Checking, Savings, Money Market, CDs), Autos, Toys, etc.  Each account or property listed will either be categorized as probate property or non-probate property.  Anything that falls into the probate category will transferred by the court through a probate proceeding. Anything that falls into the non-probate category will transfer without the help of the probate court.

The trick to avoiding probate is to get everything from the probate category to the non-probate category.  Sometimes we can do this by owning an asset jointly with another person (recommended only if a spouse!).  You can list a POD (payable on death) or TOD (transfer on death) which acts a bit like a beneficiary designation.  For some of us we can arrange the joint ownership of our property and designate PODs, TODs and beneficiaries sufficient enough to avoid probate.  However, the best and most reliable way to avoid probate is through a Revocable Living Trust.  This is a legal instrument where a person would create the document during their lifetime and then transfer all of their assets to the trust.  The assets in the trust are managed by the trustee for the benefit of a beneficiary.  The persons designated as the trustee is typically the creator of the trust.  The beneficiary of the trust is generally the person who created it.  So the person who owned the assets would still own them and still have the ability to buy and sell assets.

Upon the death of the trustee/beneficiary, their assets will be disposed of according to their wishes as they have expressed in the trust.

Example:

Tom is divorced and has 2 children ages 19 and 23.  He has a modest estate with $100,000 in 401k assets in which his kids are named the beneficiaries.  He solely owns a townhouse that has a fair market value of $160,000 which he owes nothing on.  He has $1,000 in his solely owned checking account on which his two children are designated as the PODs (payable on death).  He also solely owns e vehicle valued at $20,000 which he also owes nothing on.

Probate Assets: Townhouse and Automobile      Nonprobate Assets: 401k, Checking Account

For Tom to avoid probate it would be simplest for Tom to create a Revocable Living Trust entity.  He would then transfer his townhouse through a deed to the Revocable Living Trust and then head to the DMV to transfer the title of his automobile to his Revocable.  Upon completion of those two transfers, Tom no longer has PROBATE property, only NONPROBATE property.  He will NOT go through probate as a result.

Another advantage to having a revocable living trust (although this can be accomplished through a will too) is that his children who are 19 and 23 may not be responsible enough to inherit his entire estate.  Tom can then designate in his trust rules on the distribution of the funds through the use of a trustee who succeeds him and will be tasked with managing the funds for the benefit of Tom's kids.

If you have additional questions about trusts to avoid probate or to provide for the management of inherited funds for children, contact Jill Ide or Kristi Weikel at the Weikel Law Firm, LLC.