When you plan ahead, avoiding probate is not a complicated process. There are several ways to guarantee that your chosen beneficiaries get their inherited property directly and not through protracted proceedings in probate or surrogate courts.
In this guide, we’ll cover the following:
- What types of assets are subject to probate?
- Can you transfer real estate without probate?
- When is probate not necessary?
- What are ways to avoid probate?
How Does Probate Work?
Probate is the legal process of verifying a deceased person’s last will and testament in order to transfer assets to beneficiaries after death. Transfers must follow either the instructions as set out in a written will or the requirements of state probate laws if no will is found.
Once probate begins, the appointed executor must file the deceased’s will, make arrangements for dependents, make an inventory of all assets, safeguard property, pay outstanding taxes or debts, and notify potential beneficiaries.
Why would you want to avoid probate?
The probate process is usually not simple or efficient. Validating a will in court and transferring assets can be a lengthy process — the length of time usually depends on the size of the estate and how quickly the estate executor can obtain a death certificate and petition the court.
According to the American Bar Association, even an average estate takes between six and nine months for all assets to be distributed to rightful heirs at a cost of about $1,500 in probate fees.
If you plan ahead, however, there are various ways to avoid the probate court system and transfer assets to beneficiaries directly without waiting for a will to be verified.
What Assets Can Avoid Probate?
Any asset can avoid probate if you leave them directly to your heirs or beneficiaries by naming them outside the confines of a will or any order of distributions required by state law. Assets pass automatically at death and require no waiting time or verification before transfer.
Assets that can avoid probate typically include:
- Life insurance policy proceeds
- Payable-on-death accounts
- Property held in trust
- Property with right of survivorship
- Funds in a pension plan
- Funds in a retirement plan
- Funds in 401(k) accounts with a named beneficiary
- Jointly owned property or real estate
- Gifted property
- Unclaimed salary or wages owed to the deceased
- Transfer-on-death deeds/registrations
Keep in mind that for smaller estates, a procedure called summary probate can be used in most US states. Summary probate is a simplified probate process allowing estates to quickly move through the court system when the deceased’s estate is valued below a certain amount.
For example, Florida allows for simplified probate (called summary administration) in cases where an estate has probate assets valued at $75,000 or less.
There are even some states that have adopted alternatives to the probate procedures for families with no real property and assets. In Texas, if the estate is small and includes only personal property, the state allows families to use informal family settlement. These simplified procedures save families probate court fees, executor’s fees, and attorney’s fees.
5 Ways to Transfer Assets Without Probate
Planning ahead and transferring your property and assets to your heirs and named beneficiaries without going through probate court will save your loved ones uncertainty, stress, lengthy wait times, and costly probate fees.
The following are some of the most common ways to transfer assets directly and avoid probate:
1. Create a living trust
You can place practically any asset you own in a revocable living trust, whether it consists of bank accounts, real estate, certificates of deposit, personal property, cash, boats, planes, vehicles, antiques, art collections, jewelry, or any other item of interest or value. Some consider a living trust to be the best way to leave property upon death.
By definition, a trust is a separate legal entity set up to hold assets. You can place your assets in a living trust while you’re alive for your heirs to inherit after your death. Living trusts are widely used because they are flexible, can be changed at any time, and can protect your property from probate.
For example, California requires an estate worth over $166,250 to undergo full probate unless alternate arrangements, like a living trust, have been made. This would include many residents in California.
Trusts will continue to maintain their popularity because, despite the cost to create and maintain them, they can help you avoid the burden of potentially massive estate taxes. The same is true of inheritance taxes, which are still collected in some states.
Another appealing feature of living trusts is that they are not public information. Your assets will be distributed in complete privacy, unlike through probate, which becomes public record.
2. Designate accounts “payable-on-death”
Avoiding probate for bank accounts is not difficult. With a payable-on-death (POD) account, you name a beneficiary who gets the funds after your death, without waiting for letters testamentary or other probate procedures. This is particularly helpful when your named executor is also the beneficiary on the POD bank account. It passes automatically and immediately.
Under normal circumstances, when someone dies, the bank will freeze their account. The executor would then need to show a death certificate or letters testamentary provided by the court indicating their right to access the decedent’s account and have funds released. This can be a time-consuming process, especially if it involves a great deal of money.
A POD account is comparable to a transfer-on-death (TOD) arrangement. The difference is that a POD account covers bank accounts while a TOD account covers real property or investment assets. Both POD and TOD agreements avoid the months-long probate process. In addition, the beneficiary you name has no rights to the money or assets until you die, so you can choose to spend it all or change the beneficiary at any time and for any reason.
3. Make property jointly owned
There are multiple ways to pass real estate to another person without probate by making the property jointly owned.
Avoiding probate with joint ownership
Several forms of joint ownership provide an easy means of avoiding probate when the first owner dies. Many couples hold title to all of their significant assets as joint owners.
Usually, no additional documents are needed to take title to a property as joint owners. You simply state on your real estate deed, for example, how you want to hold title.
Jointly owned assets that transfer to the surviving owner do not go through probate. This is often referred to as joint ownership with right of survivorship.
Another form of joint ownership for married couples is tenancy by the entirety, recognized by about half of the states. This is a way for spouses to equally hold 100% interest in a property. With this form of joint ownership, the surviving spouse has ownership rights, which keeps the property out of probate.
Avoiding probate with joint tenancy
Property owned in joint tenancy avoids probate because it automatically passes to the surviving owner(s) when one owner dies. Usually, a simple checkmark is all that is needed to designate this type of ownership. After your death, the surviving joint tenant will automatically own the property.
4. Sign a transfer-on-death deed/registration
A transfer-on-death (TOD) deed (also called a beneficiary deed) is a simple and effective way to transfer real estate upon your death. TOD deeds are like regular deeds that are used to transfer real estate. The difference is that a TOD deed doesn’t take effect until your death. Not all states have adopted this functionality, so be sure to check whether your state allows for TOD deeds.
In a similar process, the Uniform Transfer on Death Securities Registration Act lets you name beneficiaries for your stocks, bonds, certificates of deposit, investment, or brokerage accounts. The process is comparable to a payable-on-death bank account since it only takes effect upon your death and you have the right to manage the assets however you please during your lifetime.
Finally, probate won’t be necessary if you use a TOD form to register a car or other vehicle. With a transfer on death designation, the beneficiary usually just needs the title and a death certificate to make the appropriate transfer into their name.
5. Gift property
For the tax year 2021, you can give a person up to $15,000 tax-free or $30,000 if you’re married filing jointly. You can actually give up to $11.7 million of your wealth during your lifetime as gifts before having to pay taxes on the gifts.
There’s also no limit to the number of people you can give gifts to within a single year so you can pass on your assets to as many loved ones as you want each year, gradually decreasing your wealth until you reach your lifetime limit.
Often gift giving can help reduce the value of your estate overall, which may result in simplified probate should you still need to go through that process.
Avoiding the probate court system allows you to transfer your assets to your heirs and beneficiaries without requiring them to wait for a lengthy probate process to be completed.
There are several ways to probate, including living trusts, joint ownership, and payable-on-death bank accounts. These methods ensure that your loved ones get the property and assets that you decide to leave for them immediately and directly.
While it can be unpleasant to consider, taking steps to plan for the end of life today can be a blessing to family members and loved ones down the road.