✩ FAQ: Can Probate be Avoided?

Posted: September 3rd, 2007 by Gaslowitz Frankel LLC

When a person dies, he or she generally leaves both probate and non-probate assets. Assets that are distributed outside of the probate process are non-probate assets. Since the probate process is not involved, these assets generally can be distributed more quickly to the appropriate beneficiaries. Another advantage of non-probate assets is that since they escape probate, the assets do not become a matter of public record and thus privacy is maintained for the estate and for beneficiaries.

Assets are considered non-probate when, by contract, the beneficiary is already named. The most common examples of non-probate assets are life insurance proceeds and tax-deferred retirement plans, such as IRAs and 401(k) plans.

Life Insurance Proceeds

A life insurance policy is a contract with an insurer that specifically identifies who will be paid after the decedent’s death. Since payment of the proceeds to the named beneficiary is part of the contract, there is no reason for the life insurance to go through the probate process.

Tax-Deferred Retirement Plans

These plans generally require the participant to name a beneficiary who will receive the proceeds of the plan in the event of the participant’s death. Since the beneficiary is determined by contract in advance, there is no need for the plan to go through the probate process.

Revocable Living Trusts

A revocable living trust is a legal entity established to hold title to property. When the property owner gives property to the trust, title to the property passes to the trustee of the trust. The document establishing the trust designates to whom the trust property will be distributed at the donor’s death. Since the trust is revocable, the donor has access to the property during his or her lifetime and can, if he or she chooses, take back title to the property. At the donor’s death, the property in the trust passes outside of probate because title is not in the name of the donor.

Other Non-Probate Assets

If an owner of property contractually names a beneficiary who will succeed to ownership in the event of his death, then the property falls outside the probate process and the asset will go directly to that named beneficiary. Methods of establishing non-probate property include:

  • Joint Tenancy with Right of Survivorship – When two or more people own an asset jointly, it is often held with a right of survivorship. If one of the owners dies, the other owner(s) then automatically acquires the decedent’s ownership interest in the property. It is common for married couples to hold real estate or bank accounts in joint tenancy with right of survivorship.
  • Payment on Death Bank Account – A beneficiary is named when an account is opened. The beneficiary has no ownership interest in the account while the account owner is alive, but at the owner’s death full ownership of the balance in the account automatically passes to the named beneficiary.
  • Transfer on Death Securities – Stock, bonds, and brokerage accounts titled in this manner work the same way as POD bank accounts. The account owner names a beneficiary, the beneficiary has no ownership interest in the securities while the owner is alive, and at the owner’s death full ownership in the securities passes to the named beneficiary without probate.

Each of the foregoing strategies presents some attendant risks. For example, a person who opens a bank account jointly with a right of survivorship gives up exclusive control of the funds in the account. The other joint owner may take the funds or a creditor of the other owner may reach the funds.

If you are interested in strategies to avoid probate, please consult with an experienced attorney who can offer comprehensive estate planning advice.

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