Probate Avoidance Techniques

By Mark T. Coulter, Esquire
Estate Planning Attorney

Frequently a goal of those seeking advice regarding estate planning, Probate Avoidance Techniques can be used to minimize the expense, delay and disruption to your affairs which might otherwise be caused by the probate process. The burdens and benefits of Probate are discussed in other articles in this section. In this article, several of these options to avoid probate are briefly discussed.

OPTION ONE: Property Title Management

All of the property which you own at death may be a part of your taxable estate, and yet not be a part of your probate estate. If something is not a part of your probate estate, then it stands to reason that it shouldn’t have to pass through probate. One common example of this it the use of property title management techniques. If you hold title to a piece of property, say a vacation home, in your own name, then absent other planning efforts, it will become a part of your probate estate. If, however, you have the title in your name and someone else, say an adult child of yours, then you may hold the property as Joint Tenants with Rights of Survivorship (JTWROS). When one of you passes on (presumably you in this example), then the title to the property automatically goes to the surviving tenant (your child, in this case). No probate process is required to give effect to this change in title; instead it operated automatically upon the death of one of the owners. Thus, by managing the title to the property, probate has been avoided.

OPTION TWO: Contract Beneficiary Management

Many people are entitled to pension benefits during their lifetime, and some benefits to a beneficiary upon their death. A similar benefit may exist under a profit sharing plan, or any other contract wherein you have the ability to name someone to receive benefits upon your death. If you fail to identify a beneficiary when the contract is initiated, as often happens due to uncertainty regarding what to put in that space on a firm, then you risk passing on without a named beneficiary. In such a case, then the benefit usually defaults to a payment to your estate, which then makes it subject to the probate process. The best way to avoid this result and skip probate for such assets is to make sure that beneficiary designations on such contract rights include a primary beneficiary, as well as secondary beneficiaries. Secondary beneficiaries are used to identify a person or persons to take the benefit if the primary beneficiary has also died. Because these contract beneficiary designations are often forgotten about and neglected for decades, it is good to cover the contingency of a primary beneficiary who has passed by naming a secondary beneficiary. If you haven’t properly identified beneficiaries at the inception of the contract, you can usually still update or modify your beneficiary designations to accommodate your current needs.

OPTIONS THREE: Account Title Management

Several options exist which permit you to title financial assets, including bank accounts, investment accounts, and bonds, in ways which pass title to a surviving beneficiary without the need for probate thereof. One example is to hold such accounts with another person as Joint Tenants With Rights of Survivorship. As with the real estate example above, title to the entire account transfers automatically to the surviving owner or owners upon the death of one of the joint tenants. A similar result can be obtained, but with more control by the creator of the account, using Payable On Death or Transfer On Death account designations. Depending upon the statutes in your state, one or both of these titling methods may be available to you. Such accounts work just as they sound; the account is paid or transferred on death to the person you designate. POD accounts are more common for bank accounts and certificates of deposit, and TOD accounts encompass a broader spectrum of assets, including stocks, investment accounts, and bonds. Until the time of your death, however, you as the creator have exclusive control over the assets in a POD/TOD designated account, and the proposed beneficiary has no right to any or all of the asset until your death. You can even cancel the account entirely if you choose. POD, TOD and Joint account titles all result in the assets being passed directly to the named party upon your death, without passing through probate.

OPTION FOUR: Retirement Account Beneficiary Management

As with contract rights in Option Two above, you have the ability in most retirement savings vehicles to name a beneficiary who is entitled to receive the assets remaining in your retirement account upon your death. 401k’s, IRA’s, 403b’s, and the various Roth versions of these types of accounts all typically permit such a feature. The advantage to naming a primary and secondary beneficiary for these accounts is again the ability to pass them directly to a beneficiary, free of probate delay or expense. It is important to keep your beneficiary designations up to date, both to properly reflect your intended plan, and to keep these assets from defaulting into your probate estate for lack of a valid beneficiary.

OPTION FIVE: Life Insurance

Perhaps the best known way to keep estate assets out of probate is to pass them through your life insurance policy. Life insurance benefits which are paid to a named beneficiary are not a part of your probate estate. As with other such assets, however, it is important for you to keep primary and secondary/contingent beneficiary designations up to date, to reflect your intent and to keep the benefits from ending up in your probate estate because you didn’t have a valid beneficiary named.

OPTION SIX: Trusts

A common estate planning tool is the use of a Revocable Living Trust. These are frequently used for interests of privacy, tax planning or future control over assets. One other benefit, however, is the ability of a Trust to keep assets out of your probate estate. Instead of becoming a part of your probate estate, the trust assets are handled by your trustee in accordance with your prior directions in a Trust Agreement, whether transferring the assets to named beneficiaries, or continuing a trust arrangement for the benefit of named beneficiaries. Other articles here and elsewhere discuss the many nuances of trust operation in far greater detail than this summary treatment calls for.

If one of your planning goals is to avoid Probate for any reason, then you can see that a variety of planning tools are readily available to satisfy your aim. It is important that the tax consequences of any such method be considered, including capital gains for income tax purposes, basis acquisition, Estate and Gift Tax concerns, and more. Further, these methods may affect other portions of a comprehensive estate plan, such as the provisions in a Trust or Will, so consideration must be given to these factors in the context of your entire estate plan.

Please feel free to contact us if you would like to discuss how your estate may be configured to include provisions to minimize the expense and inconvenience of Probate, and the benefits and costs of such efforts.

About Our Law Office

At the Estate Planning Centers at Coulter & May, P.C., we devote our practice to estate planning and assisting families through such transition times with estate and trust administration counseling. We offer guidance and advice to our clients in every area of estate planning, and offer comprehensive and personalized estate planning consultations. For more information or to attend an upcoming seminar or to book a consultation directly, please contact us at (412) 253-7526 or visit us online at www.estateplanningcenters.com.

Disclaimer: The information presented in this article is a conversational summary of a complex area of law and should not be construed to constitute legal advice. No person should rely upon the content of this article for making any decisions, and should instead consult with appropriate legal and tax professionals.