Avoiding Probate

For the reasons discussed above, it may be prudent to avoid the probate process in one or more states. There are several methods of avoiding probate, some of which do so with ease but have disadvantages that require additional scrutiny.

1. Joint Tenancy with Rights of Survivorship
   With the exception of retirement plans, IRA and life insurance, joint tenancy ownership can be used on most property. Property owned in joint tenancy with rights of survivorship avoids probate because his or her interest in the property automatically passes to the surviving joint owners(s) by operation of law at the first joint owner’s death. Unlike probate assets, jointly owned assets are not frozen, and are generally made available to the surviving joint owner(s) immediately. By owning property in this manner, probate is avoided; however, there are a number of disadvantages, such as achieving only a partial step-up of income tax basis, possible gift tax consequences, loss of ownership and control over the asset, and increased creditor exposure.


2. Beneficiary Designations
   Beneficiary designations under life insurance plans, retirement plans and IRAs avoid probate because they follow strict contractual guidelines specifying the person to whom the proceeds should be paid. There is no need for a probate court to oversee the distribution of these types of assets, unless the named beneficiary is the estate or the beneficiaries do not survive the decedent.


3. Transfer on Death Accounts
   Transfer on death (TOD) accounts (also known as payable on death accounts or Totten trusts) provides an alternative to jointly owned assets for bank accounts. During lifetime, the beneficiary of the TOD account has no rights to the account. The beneficiary of the TOD account can be changed at any time by the account owner, the funds spent or the account closed. At death, the asset is transferred to the beneficiary without going through the probate process. Although one method of avoiding probate, it is limited to bank and brokerage accounts and not used for tangible personal property or real estate. A TOD account requires the survival of the named beneficiary, otherwise it will be subject to the probate process of the owner.


4. Trusts
   The final probate avoidance device is a properly prepared trust. A trust is a legal entity created by one party for the benefit of himself/herself or other parties. It can hold title to virtually any type of property. As such, it avoids probate by having title in the name of the trustee of the revocable trust and not the decedent and providing a plan of disposition for its assets at the date of death. With a Revocable Trust, which is a very popular will substitute in estate planning, the named trustee (or successor trustee) generally is given authority to pay the decedent's bills and has a fiduciary responsibility to distribute the trust property to beneficiaries (including other trusts) as provided in the provisions of the trust agreement. A revocable trust does not depend upon survival of specific persons to avoid probate.