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How to avoid probate with proper planning

How to Avoid Probate With Proper Planning

You’ve come here in search of the best way to avoid the lengthy probate process. The answer is simple: with proper non-probate estate planning. However, if your perspective is that of a beneficiary trying to currently figure out how to avoid probate court due to a recent family member passing away, in that case, there’s not much you can do to change your situation now. If you are researching how to create a plan that will avoid probate in the future for your loved ones, here’s what you should know.

Common Estate Planning Terms

To get started on this topic, let’s define some common words and phrases you should familiarize yourself with regarding non-probate planning. 

  • Assets – all property, accounts, and items a person owns.
  • Estate – one person’s total assets, minus liabilities or debts, owned at the time of death.
  • Beneficiary – any person or entity designated to receive assets upon a person’s death whether by will or otherwise.
  • Probate – the legal process of validating and administering a deceased person’s will.
  • Probate Assets – all assets that have to be distributed to beneficiaries by going through the probate court, regardless of whether there is a last will and testament or not.
  • Non-Probate Assets – assets that pass directly to a beneficiary without having to go through the probate court process, regardless of having a last will and testament, which can be transferable on death (TOD) or payable on death (POD).
  • POD “Payable on Death” – the form or term used for monetary assets (such as a bank account) that will be disbursed directly to a beneficiary upon a person’s death.
  • TOD “Transferable on Death” – the form or term for physical assets (such as a car) where ownership will be reassigned to a beneficiary’s name upon a person’s death.
  • Revocable Trust – a trust that can be changed or canceled during the grantor’s lifetime.
  • Irrevocable Trust – a trust that cannot be changed once it’s finalized.
  • Trustor or Grantor – the person who made the trust

Creating an estate plan utilizing beneficiaries or a trust is the most reliable way to avoid probate court. We call this non-probate planning. When you assign beneficiaries to your assets, that person will simply need to present a death certificate to the company managing the asset (the bank, BMV, etc.) and the asset will be payable or transferable. There may be additional forms required to fill out based on that third-party company’s policies, but the beneficiary would not have to go through the probate court process.

Is it Beneficial to Avoid Probate? 

Whether avoiding probate court is beneficial to your beneficiaries or not depends on your circumstances. In many cases, it is valuable because it’s faster and can save money. 

Oftentimes the probate court process will take six months, or more, to probate a will. But, with a POD or TOD in place, the person only needs to obtain a copy of the death certificate from the funeral home, present it to whoever is maintaining the asset, follow any additional steps they require, and as long as there’s a beneficiary on file, those assets will be granted directly to that person. 

It can generally be cheaper to avoid probate if the beneficiary doesn’t need to hire an attorney to have the will probated. That will save money on attorney and court fees. 

Now, it can get complicated if you have minors as your beneficiaries. Here I’m thinking about a minor as a POD beneficiary on your bank account, for example. The court tends to get involved regardless when it comes to minors. Unless you have some very specific language included. 

Generally, I would say avoiding probate is advantageous. But, you should always consult your attorney for specific advice in your individual situation. 

What Assets Can Be Non-probate Assets?

Good news, any of your assets can be non-probate assets! Including your checking account, savings account, home (even with a mortgage), rental properties, farmland, vehicles, stocks, bonds, a business you own or shares you may own in a business, life insurance, annuities, IRA’s, and so on. All of these valuables can be transferred through a beneficiary and avoid probate. 

A lot of people tend to forget about adding a TOD beneficiary on their vehicle title with the BMV. This is a big one to miss. And if you don’t list a beneficiary on any one of those assets then it will have to go through the probate court process.

When I meet with my clients, I typically ask for all financial information, accounts, and a list of all assets and liabilities. It seems like a lot at first. But I do this so that I can help make a comprehensive plan that is organized and, ideally, streamlined for your loved ones in the future. It’s important that you trust your attorney and understand the attorney-client relationship.

Using a Trust to Avoid Probate

Up to this point I’ve mainly spoken about beneficiaries via POD or TOD. Putting everything in a trust can also avoid the probate court process.

A trust is a very detailed document about what happens to your assets in certain circumstances. Generally, in this type of case, we would set up a revocable living trust. This means the assets are still yours, and you are free to buy and sell them as you wish. You would need to retitle all of your assets and/or you would name the trust as the beneficiary. With a life insurance policy or a 401(k), those are assets that you cannot retitle, but you can name your trust as a beneficiary. A bank account, however, you can retitle in the name of your trust.

Typically, if you’re going to make a trust, we advise that you transfer all of your assets into the trust. They are still yours because you are the trustor, the creator of the trust. You’re still able to buy and sell your assets as often as you’d like, but having them already in your trust will save a lot of headaches later on for your trustee(s). 

Pour-Over Will

Even with a trust, we always put a will in place. It’s called a “pour-over will”. Any assets not titled in the name of your trust or that do not have your trust listed as a beneficiary at the time of your death, will go through the probate court process.  Your will states that all of those assets “pour-over” into your trust.  

For example, let’s say you had a bank account that you didn’t title in the name of your trust before you passed away. That account would go through probate court. The court would look to your will, which would state that all assets go into your trust. Finally, that bank account would go into your trust and be distributed in accordance with the terms of your trust. That’s how a pour-over will works. 

POD/TOD vs. a Trust

There are a couple of extra steps when using a trust versus using a POD or TOD beneficiary. 

Let’s continue with the bank account example. To set up the POD for your bank account, you would simply go to your bank and ask for the proper form. On the form, you can indicate that you’d like your bank account to go to your three kids equally when you die. That’s it, you would now have your POD beneficiaries listed on that account. 

Now let’s say you want to have the same arrangement to split your bank account between your three kids equally, but this time using a trust. You can indicate in the terms of your trust that all assets get distributed equally between the three children. Next, you would have to go to the bank and show your trust documentation to change the name of your bank account. Instead of being named “Jane Doe”, you would change the title of the bank account to “Jane Doe as trustee of the Jane Doe living trust”. The bank account is still yours, but you change the title so that it’s in the trust. 

When you die, you have a new trustee, based on what your trust document says. Your assets are distributed in accordance with the terms of the trust as opposed to going directly to the beneficiary through POD.

Not sure which option is right for you? Ask your attorney for their best advice. 

FAQs About How to Avoid Probate

Can you contest non-probate assets? 

Yes, you can contest non-probate assets. If a person thinks a beneficiary was listed by using undue influence or other improper means, it can be contested. This would all take place in probate court.

Do TOD and POD avoid Probate?

Yes, assuming it is not being contested. 

Are POD accounts part of an estate?

Yes, all of your assets are part of your estate. Your house, car, accounts, retirement funds, rugs, pillows, TV, etc., are all your estate. Whether it goes through probate court or not is the process of distributing the estate assets. 

Can a trust be a POD beneficiary?

Yes, a trust can be added as a payable on death beneficiary, or even a transfer on death beneficiary for any of your assets.

So, if you want to save your loved ones from going through the probate process after you pass away, contact me and we’ll schedule a consultation call.

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The Comments

  • Executor Duties Checklist - Amanda Waltz Law, LLC
    August 25, 2023

    […] This is a matter of determining what assets are in the estate and whether or not they have beneficiaries. So, this step and step 4 go hand-in-hand. If there are assets that do not have a beneficiary indicated, those assets will have to go through the probate process. Those organizations, ie the financial institutions, life insurance policyholders, the bank, etc., will each be able to tell you whether or not there is a beneficiary listed.When there is a beneficiary listed, those assets go straight to the beneficiaries and do not have to go through probate court. (Read more about avoiding probate with proper planning here.) […]