You may hear the words “avoid probate” and think “well, that is illegal”. We are here to tell you that avoiding probate is completely legal. In fact, we are asking you to take advantage of the law. Avoiding probate has numerous benefits to your estate plan. However before we dive into those benefits, we need to first introduce and understand what “probate” means.
What is Probate?
Probate is the process of proving that a will is valid. In other words, the court looks to prove that the will is the last known testament of the deceased. A will is not a self-executing document and thus needs a court to validate it.
There are three main functions of probate:
- Ensure the will is valid.
- Protect creditors. (Provides a procedure for the payment of decedent’s debts)
- Ensure beneficiaries get their inheritance.
There once was a time where all wills had to be subject to the probate process. However the probate process was deemed slow, cumbersome, and expensive. Therefore, courts have designated certain property “as non-probate property”, meaning that such designated property need not enter the dreaded realm of probate court.
Types of Non-Probate Assets
(1) Living Trust
Otherwise known as an “inter vivos trust”, a living trust avoids probate. Upon creating a living trust, you can place particular assets in the trust for your named beneficiaries. Because they are placed in the trust during your lifetime, they pass to your named beneficiaries immediately upon your death. However, you can also specifically state how you want distribution of the assets to occur. Maybe you don’t want your child to receive your house until he/she reaches the age of 25. Maybe you don’t want your child to receive your favorite car until he/she reaches the age of 30. Whatever it may be, a living trust allows you to avoid the expensiveness of the probate process.
One question JUSTLAW Attorneys get quite often in regards to trusts is how do the logistics of a revocable living trust work?
Revocable living trusts are one of the most common forms of shielding assets from the probate process. In creating a revocable trust, there are customarily three titles involved: grantor, trustee, and beneficiary. The grantor creates the trust and “funds” it with assets that they wish to “exist” inside of the trust. The grantor primarily places assets into a trust because they wish to name a beneficiary of the trust who will eventually receive those assets in the future. The third person involved is the trustee who manages the trust.
The idea of a revocable living trust is for the grantor to provide his or her named beneficiaries with assets upon their death. Once assets are placed in the trust, the grantor no longer owns them. The trust does. However, because such documents are “revocable”, you can amend the terms of the trust to put assets back in your name at anytime you wish.
(2) Pay on Death/Transfer of Death Contracts
There are quite a few documents that you most likely have executed in your lifetime, yet had no idea they coincide with your estate plan. Do you recognize these documents below?:
- Life Insurance Policy
- Bank Account
- 401k account
- Pension
- Brokerage account
- Mutual fund
If you currently maintain any of these documents, ensure that you have named a beneficiary on them. If you do, the documents will avoid probate.
As for a beneficiary, your job is very simple. All you have to do is provide a death certificate with the applicable company and they will subsequently transfer the account over to you. It’s as simple as that.
(3) Jointly Held Property
Jointly held property will allow for the property owned jointly to immediately pass to the surviving owner upon an owner’s death and thus avoid probate. Once the decedent passes away, anything owned in joint tenancy is owned in full by the other owner(s).
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We hope this article was beneficial to you. If you are looking to start your own estate plan, contact your friends at JUSTLAW. Let us help you provide protection for yourself and your loved ones. With high quality, professionally drafted estate planning documents now available at extremely attractive prices, nobody should leave these critical issues to chance.
