When an individual dies owning property solely in his or her name without a beneficiary designation, a formal procedure (“probate”) is usually needed to determine to whom the property should pass. If there is a valid Will, the probate court will oversee that property passes according to the terms of the Will. If there is no Will, the property will pass to the individual’s heirs at law through the probate system.
However, it is possible to legally pass property to another person without going through probate. Keep in mind that although it is often beneficial to avoid probate because it can be costly and time consuming, some probate avoidance strategies have pitfalls. Additionally, probate is sometimes the best option depending on the situation. The following are examples of probate avoidance devices:
Joint Tenancy—Adding another person to your assets as a joint tenant or “joint tenant with rights of survivorship” will allow your property to pass to the other individual upon your death without the need for a probate proceeding. The obvious pitfall is that while you are alive the other owner has access to 100% of that asset and the asset is subject to any claims of the co-owner and/or creditor of the co-owner. If you would like to learn more about this topic, please request our free report, “The Trouble with Joint Tenancy”.
Beneficiary Designations—Adding a Transfer on Death (TOD) Beneficiary to your motor vehicle or Pay on Death (POD) beneficiaries on bank accounts. Unlike joint tenancy, adding beneficiary designations to your property allows you to name an individual to inherit your property at your death without giving them any current ownership. The property will pass to the individual of your choice without going through a probate proceeding. One of the problems associated with beneficiary designations is that often the estate is not divided equally among the family as was intended by the individual.
Revocable Living Trust—Revocable Trusts are documents wherein an individual “Grantor” creates a Trust instrument and names an individual (usually themselves) or a bank as “Trustee.” The Grantor then transfers property into the Trust and the Trustee manages the property and distributes the property according to the terms of the Trust. Unlike the addition of joint tenants or beneficiaries on your accounts, which may lead to conflict among family members, a Revocable Living Trust allows you to specify how and when you wish your property to pass. A Revocable Living Trust also avoids some of the adverse tax consequences associated with joint titling and beneficiary designations, while accomplishing the same goal of avoiding probate. For more information on the benefits of Living Trusts, request our free report “Living Trusts, Calculating the Benefits” or attend one of our free Living Trust seminars.
Other considerations—What happens if an individual is incompetent? With a Living Trust, your designated Trustee takes over management of Trust property and must manage it according to your explicit instructions in the Trust document.
The above information is general. Before taking action to avoid probate, you should consult an experienced estate planning attorney who can examine your specific situation and advise you accordingly.
ABOUT THE Litherland, Kennedy & Associates, APC, Attorneys at Law
Roy W. Litherland is an attorney whose practice emphasizes elder law and estate planning. Roy has practiced law in the greater Bay Area for over 35 years and is certified as a legal specialist in Estate Planning, Trust and Probate Law by the California State Bar Board of Legal Specialization. In addition to his extensive legal background, Roy was also previously licensed as a Certified Public Accountant. Although Roy has an extensive background in accounting, he retired his license to practice as a CPA to devote his time and energy entirely to the practice of law, specializing in estate planning, trusts, Medi-Cal planning, and probate. Roy is a noted speaker on living trusts, Medi-Cal Planning, and estate planning. He is a member and designated Fellow of the American Academy of Estate Planning Attorneys, an organization that fosters excellence in estate planning.
The Litherland, Kennedy & Associates, APC, Attorneys at Law is a member of the National Academy of Elder Law Attorneys and the California Advocates for Nursing Home Reform.