There are a variety of estate planning vehicles that serve as Will substitutes, allowing a person to do much of what they want to do without having their estate pass through probate.

A. JOINT OWNERSHIP

        Joint ownership is an effective way of assuring that property automatically passes to a surviving spouse or to whomever else you might wish to take it on your death, but joint ownership alone is seldom an acceptable substitute for a Will.  This is because joint ownership between husband an wife may result in significant, and legally avoidable, estate taxes; joint ownership between a parent and child may bring fights between family members, subject the property to creditor's claims, and also bring entirely avoidable gift taxes.

        Joint tenancy with right of survivorship is one of several ways two or more people can own an interest in the same property at the same time.  Joint tenancy with right of survivorship will work with all kinds of property, real property (land and buildings on it) and personal  property (pretty much everything else).  But if you intend to use joint tenancy to avoid probate, you need to make sure that in fact you are holding the property as joint tenants with right of survivorship.  More than one person can also share an interest in the same property at the same time through trusts,  partnerships and as "tenants in common," and none of them operate the same as joint tenancy with right of survivorship.  A married couple can hold property as "tenants by the entirety", which isn't exactly the same as joint tenancy with right of survivorship.

        The advantage of joint tenancy with right of survivorship is that if one of the joint tenants dies, his or her share automatically goes to the surviving joint tenants, with no need to go through probate court.  In some states joint tenancy with right of survivorship is created automatically when the property is acquired by two or more people.  Not so in Tennessee.  In Tennessee a joint tenancy with right of survivorship is created only if the deed or other document setting forth the parties' ownership interests states that they are joint tenants with  right of survivorship.

        Joint tenancy with right of survivorship will not avoid  taxes.  Federal estate taxes and state inheritance taxes are still due on property interests received by survivorship in joint tenancy with right of survivorship.  At times the creation of joint tenancy with right of survivorship may result in having to pay gift taxes.
 

B. LIVING TRUSTS

        A funded revocable trust, "Living Trust", can be an important part of an estate plan for many people, but it does not eliminate the need for a Will.  If you have a Living Trust you still need a Will to distribute those assets that have not or cannot be placed in the Trust.  Generally when a Living Trust is put in place a "pour over Will" is executed along with the trust documents to act as a catch all for any property remaining outside of the Trust, but the pour over Will is only a safety net and should not be used to justify failing to properly set up the Living Trust by assigning your assets to the Living Trust, since failing to assign assets to the Living Trust forces the estate to go though the probate process which is generally the main reason a Living Trust is drafted in the first place.
 

C. TRADITIONAL TRUSTS

        Traditional trusts can be prepared in an infinite variety of forms, doing virtually whatever you could want, including avoiding probate.  The drawbacks of traditional trusts are that they are not as flexible as Living Trusts, but often will cost the same to prepare.  Most trusts are irrevocable, meaning that once you put your assets in the trust, you are unable to get them back out of the trust and you are unable to do anything further to decide how the assets will be used.

 
D. TRANSFERRING TITLE, BUT RETAINING A LIFE ESTATE

        You can transfer title in personal or real property to another person (or to a trust or group of individuals or a corporation or any other legal entity) while retaining a life estate in the property -- in other words while keeping use of it during the remainder of your life.  Ownership is transferred when you execute the deed, or sign the paperwork for personal property, and the person you transfer title to can hold it or sell it or do anything else they wish to with is just as any other owner can with their property, with one important exception -- you get to continue using it during the remainder of your life.  This means that the person you transfer title can sell it, but that the sale is subject to your continued right of use of the property (this often has a very strong effect on the sale price of a home if you are still in it and intend to stay there until your death).  How long can you remain in the property (or continue to use the personal property, like a car or anything else)?  Until you die, regardless how long that is.  In one widely reported case in the mid 1990's a French woman who sold her properly when she was about about 65 and needing some case died at roughly age 110, about 15 years after the death of the man who had bought it from her some 40 years earlier.  (The man's heirs took the property on her death, just as the man would have, but it happened long after he had hoped when he bought the property but left her the life estate.)
 

E. LIFE INSURANCE

        The proceeds from any life insurance policy you might carry on yourself will go directly to your named beneficiary on your death.  It will not pass through probate court unless you name your estate as your beneficiary.
 

F. OTHER METHODS

        Car titles and most bank and financial accounts can include a "pay on death" or "transfer on death" designations.  Such property passes automatically to the named person without any probate court supervision.

 

back to Jes Beard's home page	Easy Ways to Avoid Probate by Mary Randolph      Copyright © Noel Press  This article originally appeared in the Noel News and is adapted from 8 Ways to Avoid Probate, by Mary Randolph. Set Up Payable-On-Death Accounts  Why It's Worth Your While to Avoid Probate  Name a Beneficiary for Your Retirement Accounts  Register Stocks and Bonds in Transfer-On-Death Form  Name a Beneficiary for Vehicles  Hold Property in Joint Ownership  Create a Living Trust  Take Advantage of Special Procedures for Small Estates  Make Gifts
Next | Top	Given the plentiful drawbacks of probate, it's not surprising that people have sought ways around it. In a nutshell, you can avoid probate by using other documents in place of a will, or by transferring property before your death.  Probate avoidance is now so popular that transfers outside probate are "a major, if not the major, form of wealth transmission," according to one committee of legal experts.  Trusts are the most well known, and flexible, probate avoidance tools. But there are many other and even easier ways to avoid probate. This article outlines eight of them, which you can mix and match to suit your needs. None of them requires hiring a lawyer; all involve very little or no expense.
Next | Back	Set Up Payable-on-Death Accounts Payable-on-death bank accounts offer one of the easiest ways to keep money--even large sums of it--out of probate. All you need to do is properly notify your bank of whom you want to inherit the money in the account. At your death, the beneficiary can claim the money directly from the bank, bypassing probate court.  As long as you are alive, the person you named to inherit the money in a payable-on-death (P.O.D.) account has no rights to it. If you need the money--or just change your mind--you can spend the money, name a different beneficiary or close the account.
Next | Back	Why It's Worth Your While to Avoid Probate During probate proceedings, a deceased person's will is brought to the local court, and its validity examined. (If there is no valid will, the court determines who, under state law, stands to inherit.) The deceased person's property is inventoried and appraised, relatives and creditors are notified, and a notice is published in a local newspaper. Creditors make their claims, and debts are paid. Eventually the remaining property is distributed to the inheritors.  What's wrong with this process? Lots, including:  It's a waste of money. The cost of probate varies widely from state to state, but attorney, court and other fees often eat up about 5% (or more) of the value of property left behind at death. The cost might be justified if probate really did something for families. But in most instances, there's no need to be in court.  It's a windfall for lawyers. A lawyer who accepts a probate case is almost guaranteed a nice profit for very little effort. Generally, probate entails lots of tedious paperwork, most of which is done by legal secretaries and paralegals.  It takes too long. Often, probate takes a year or two, during which the beneficiaries generally get nothing unless the judge allows the immediate family a modest "family allowance."  It is public. A will--a very personal document, which may reveal much about both someone's financial and family circumstances--becomes a matter of public record after its writer dies. It can be inspected by anyone who goes to the courthouse and asks.  Each state requires a court proceeding. Usually, probate takes place in the county where the deceased person was living. But if there's real estate in another state, a separate probate proceeding there is usually necessary.
Next | Back	Name a Beneficiary for Your Retirement Accounts If you're like millions of other Americans, you've set up an Individual Retirement Account (IRA) or Keogh, or contribute to a 401(k) account set up by your employer. These accounts offer tax breaks that will let your savings grow quickly, providing retirement income later. And even after your death, they can give more benefits for your family because they avoid probate, too. Any money left in one of these accounts at your death goes to the beneficiaries you chose--without going through probate.
Next | Back	Register Stocks and Bonds in Transfer-on-Death Form More than half the states (with more to come) have now authorized a simple way for people to leave securities to their loved ones without probate. All you have to do is register ownership of your stocks or brokerage accounts in "beneficiary" form. Just like a payable-on-death bank account, the beneficiary you name has no rights while you're alive, but inherits the stock without probate at your death.
Next | Back	Name a Beneficiary for Vehicles Given their maintenance requirements and rapid depreciation, it makes absolutely no sense to have vehicles sitting around for months or years while probate grinds on, before they can be transferred to their new owners.  There are a few ways to make sure that a car will get to the person you want to inherit it quickly and easily, without formal probate proceedings.  In California or Missouri, you can register your vehicle in beneficiary form; the beneficiary you name will inherit it without probate.  Some other states have special, simplified transfer procedures for cars. After the owner's death, all the new owner must do is complete a simple written statement, sign it in front of a notary public, and file it with the state motor vehicles agency. And couples often find it convenient to own vehicles in joint tenancy; the survivor automatically inherits the car, without probate.
Next | Back	Hold Property in Joint Ownership If you own valuable property with someone else, you may already have a leg up in the probate-avoidance climb. Several forms of joint ownership--joint tenancy, for example--allow you to avoid probate when the first owner dies.  Many couples conclude that holding title to their major assets in a form of joint ownership that avoids probate is all the estate planning they want to engage in, at least while they are younger. This strategy is simple and economical. To take title with someone else in a way that will avoid probate, you usually don't have to prepare any additional documents. All you do is state, on the paper that shows your ownership (a real estate deed, for example), how you want to hold title. No expense, no lawyers.  When one owner dies, it's easy for the survivor to transfer the property into his or her name alone, without probate. After that, however, the survivor will have to find another method to avoid probate on his or her death.
Next | Back	Create a Living Trust Living trusts are the most flexible probate-avoidance device around. In fact, they were invented to let people make an end-run around probate. Making a living trust allows you to have a separate legal entity--the trust--own your valuable property. This has virtually no legal consequences while you're alive, because you control the trust.  But after your death, property owned by the trust can be easily transferred to the family or friends you left it to--without probate. The terms of the trust document, which is similar to a will, authorize this transfer. Probate courts have no legal authority over property that's owned by a trust, not a person.
Next | Back	Take Advantage of Special Procedures for Small Estates States, responding to the public's dissatisfaction with the probate system, have begun to let some people slip out of the probate requirement.  Who gets out? As you might guess, it's people who don't leave much of monetary value--and whose probate cases therefore aren't worth much to lawyers. Because of the way the laws are written, however, not only small estates can benefit. Many large estates--worth hundreds of thousands of dollars--legally qualify as "small estates," eligible for special probate shortcuts.  There are two basic kinds of probate shortcuts for small estates:  Claiming property with affidavits--no court required. If the total value of all the assets you leave behind is less than a certain amount, the people who inherit your personal property--that's anything except real estate--may be able to skip probate entirely. The exact amount depends on state law, and varies from as little as $500 in Mississippi up to $140,000 in Oregon. If the estate qualifies, an inheritor can prepare a short document stating that he or she is entitled to a certain item of property under a will or state law. This paper, signed under oath, is called an affidavit. When the person or institution holding the property--for example, a bank where the deceased person had an account--receives the affidavit and a copy of the death certificate, it releases the money or other property. Simplified court procedures. Another option for small estates (again, as defined by state law) is a quicker, simpler version of probate. The probate court is still involved, but it exerts far less control over the settling of the estate. In many states, these procedures are straightforward enough to handle without a lawyer.  Most states have both kinds of procedures; some have just one.
Top | Back	Make Gifts Giving away property while you're alive is very different from other probate-avoidance strategies, which all involve leaving things to people at your death.  Making gifts helps you avoid probate for a very simple reason: if you don't own it when you die, it doesn't have to go through probate. That lowers probate costs because, as a general rule, the higher the monetary value of the assets that go through probate, the higher the expense.  All you need to make a gift is a checkbook; no fancy documents (or legal fees) are required. But if you're feeling especially generous, you should know that if you make gifts of more than $10,000 per recipient in a calendar year, you could be liable for federal gift tax.

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