HOW CAN YOU STAY OUT OF COURT WHEN SOMEONE DIES?

One of the most important things to understand about estate planning is the importance of property title.  The way property is titled impacts what type of paperwork and procedure is required when someone dies, and if someone becomes incapacitated.

People may think a will avoids probate. In fact, a will has nothing to do with whether or not probate is required.

Probate is required when you own property as an individual, or when the term “estate” is used to identify an owner or a beneficiary on title and other ownership documents.  The way to avoid probate is make sure that property you own is not titled in these manners.

• What are probate assets?
• What are non probate assets?
• What are the pros and cons of using joint tenancy to avoid probate?
• What are the pros and cons of using designated beneficaries as a way to avoid probate?
  What are the pros and cons of using a living trust to avoid probate?

Q. What are probate assets?

A. The probate property page explains how property title determines whether the asset is considered a probate asset, i.e., property titled only in the name of the decedent, or when the “estate” is listed as a beneficiary or becomes the default beneficiary.

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Q. What are non probate assets?

A. The probate property page explains how property title determines whether the asset is considered a non probate asset. Non probate assets are assets whose title is transferred to the beneficiary by operation of law or by contract.

Individuals who want to avoid probate need to make sure their property is titled so title transfers by operation of law, i.e., joint tenants with rights of survivorship, or by contract law, i.e., payable on death beneficiary designations, and living trusts.

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Q. What are the pros and cons of using joint tenancy with rights of survivorship as a way to avoid probate?

A.Married couples routinely own property titled as Joint Tenants with Right of Survivorship.  When the first spouse dies, the surviving spouse automatically inherits the property and eliminates the need for probate..

Because the surviving joint tenant wants to avoid probate when they die, the surviving spouse often considers adding one or more of their children to the deed as a method of avoiding probate.  Although the use of joint tenants with rights of survivorship can avoid probate, consider these facts before adding someone as a joint tenant.

• The property is subject to creditor claims from both joint tenants, regardless of who originally owned the asset.
• There is no step up in the tax basis of the property when you die.  When someone receives a gift, they also receive the cost basis the person giving the gift had.
• You are giving away the opportunity to do tax planning involving that property after you have made someone a joint tenant.
• The transfer into joint tenancy may be considered a taxable gift.
• In some states, the person making the gift may lose homestead or other property tax rights once a joint tenant is added.
• In some states, a divorcing spouse is allowed to make claims against property in which the other spouse has a joint tenancy interest.
• A gift can impact your eligibility for Medicaid.
• Naming someone to jointly own your property is not the same as naming someone to inherit the property when you die.  When you add a joint tenant, any action you want to make regarding the property must be agreed to by the joint tenant, including the sale or refinancing of the property.

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Q. What are the pros and cons of using designated beneficiaries as a way to avoid probate?

A . Naming a designated beneficiary is required on certain types of ownership documents, i.e., life insurance policies and retirement accounts. You have the option to name a beneficiary on other types of property, including bank accounts and brokerage accounts.

You may also avoid probate by designating a beneficiary for the following types of assets.  If you jointly own these assets, each owner may need to sign the beneficiary forms.  The designated beneficiary has no rights to the property until the owner(s) die.

• Checking and Savings Accounts. You can complete a pay-on-death beneficiary form along with the signature card provided by the bank for savings, checking or certificate of deposit accounts.
• Brokerage Accounts: You can complete a transfer-on-death beneficiary form along with the signautre card provided by financial institutions.
• Savings Bonds: You can name one designated beneficiary for each savings bond you buy.  You can also designate one beneficiary for Treasury bills and Treasury notes.
• Vehicle: Some states allow you to name a designated beneficiary when you complete your car or boat registration forms: California, Connecticut,Kansas, Missouri and Ohio.
• Real Estate.  If you purchase real estate, some states allow you to name a designated beneficiary when you complete a transfer-on-death deed.   Transfer-on-death deeds are currently only available in these states: Arizona, Colorado, Kansas, Missouri, Nevada, New Mexico and Ohio.
• When naming a beneficiary, keep this in mind:
• Beneficiary law overrides any instructions in your will or trust.
  If you name more than one beneficiary, ask what happens if one of the beneficiaries dies before the owner does, or at the same time as the owner. Make sure the results are the ones you want.
• If you name more than one beneficiary, ask whether the beneficiaries inherit on a per stirpes or a per capita basis

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Q.   What are the pros and cons of using a living trust to avoid probate?

A. You can avoid probate by transferring the title of property you own as an individual to yourself as trustee of a living trust.  Trust assets are generally not subject to probate in any state.

Although there are some costs involved in setting up the trust, these costs may be offset (if you don’t have a trust) by the cost of probate and the cost to your heirs of not having access to the estate assets for some period of time.

In many instances the use of a living trust is the preferred way, and sometimes only way,  to avoid probate when you die.

A living trust can also avoid the need for probate as you age and need help managing your affairs, or for managing the affairs of a minor child.

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