HOW TO AVOID PROBATE
Probate is a court-supervised process for identifying and gathering the assets of a deceased person, paying the decedent’s debts, and distributing the decedent’s assets to his or her beneficiaries. Probate is a costly and time-consuming process.
Avoiding probate involves planning ahead and structuring your assets and estate in a way that they pass to your heirs outside of the probate process. By avoiding probate, you can avoid attorney’s fees, court hearings and delays, so that more of your hard-earned money goes to your heirs. Here are some common methods to avoid probate:
1. REAL ESTATE: You can avoid probate by recording a deed in the public records titling the owners as:
a. Husband and wife, also known as “tenancy by the entireties.” When one spouse dies, the property automatically passes to the surviving spouse without going through probate.
b. Joint tenants with rights of survivorship. This is similar to husband and wife, but the owners need not be married. The deed must read “joint tenants with rights of survivorship.” There are other requirements, such as each owner must take the same proportion of ownership, (i.e., if there are 3 owners, they must each own a 1/3 interest), and they must all take title on the same deed.
c. Revocable living trust. A trust is essentially a holding tank, whose primary purpose is to avoid probate. It is an entity that you create out of thin air by drafting a trust document. You manage the trust while you are alive, you have full use and control of the assets owned by the trust while you are alive. You direct who gets the assets owned by the trust when you pass, (usually your children) and who manages the trust when you pass (usually your most responsible child). You can put your homestead in a trust without losing any of the homestead benefits during your lifetime. You can put other assets into a trust, such as furniture and automobiles. (It is not recommended to put banks accounts, IRA’s, insurance policies, company pensions, brokerage accounts, or any other financial accounts in a trust. See paragraphs 2 and 3, below.)
d. Lady Bird Deed, a/k/a enhanced life estate deed. This is a simple, inexpensive and easy way to avoid probate. It allows you to retain full control over your property during your lifetime while automatically transferring it to your beneficiaries upon your death, bypassing probate. You can sell or mortgage property during your lifetime without your beneficiary’s signature or even knowledge. No loss of homestead benefits during your lifetime.
2. AUTOMOBILES, RV’s BOATS, AND OTHER VEHICLES: Note that there is no “transfer on death” title to vehicles in Florida. So you can go to the DMV and tell them you want to add someone else to the title with the word “OR” separating the names. That will create survivorship between the owners. Either owner can sell the vehicle without the signature of the other, regardless of whether the other owner is alive or deceased. An alternative is to title the vehicles in a trust. That too requires a trip to the DMV.
3. BANK ACCOUNTS: If two or more people’s names are listed on a bank account, then either of them can clear the entire account without the signature of the other person, regardless of whether that other person is alive or deceased. To avoid probate for the last account holder to die, you simply fill out a “beneficiary” (a/k/a “payable on death [POD]” or “transfer on death [TOD]”) form with the bank (usually your children will be your beneficiaries). You still control all the money in the account—your POD beneficiary has no rights to the money, and you can spend it all during your lifetime if you want. At your death, and only then, the beneficiary can claim the money directly from the bank without probate court proceedings. You can also add contingent beneficiaries (usually grandchildren) in case the primary beneficiaries predecease you. At your death, the beneficiaries simply provide the death certificate of the last surviving account owner to the bank, and the bank will cut them a check.
4. IRA’s, 401(k)’s INSURANCE POLICIES, PUBLIC OR PRIVATE PENSONS, STOCK BROKERAGE ACCOUNTS, CD’s, NEARLY ANY OTHER FINANCIAL ACCOUNT: Just like bank accounts, you simply fill out a “beneficiary” a/k/a “payable on death” or “transfer on death” form with the financial institution. Simple, inexpensive, easy. If your financial institution says they have no such forms, then move your assets to one that does.
5. GIFTS: You can give away assets during your lifetime. This reduces the size of your estate. Excellent for jewelry, antiques, and other valuable tangible assets. Talk to your accountant about possible gift tax implications.
Accordingly, assets that have to go through probate are:
Real estate with only one owner, not held in a trust or in a Lady Bird Deed.
Financial accounts with no named beneficiaries.
Retirement accounts with no named beneficiaries.
Other assets not held in a trust or other probate avoidance method.
