Are you curious what Jacqueline Kennedy Onassis, universally regarded as one of the world’s most private women, did with her fortune? What about Anna Nicole Smith, Paul Newman, or even Elvis Presley – are you interested in knowing how they distributed their fortunes? Surprisingly, it is relatively easy to find out their dispositive plans for their estates because each one used a Last Will and Testament in their estate plan and a Will must be probated. Documents filed with the Probate Court, including a decedent’s Will, become public record. The desire to keep the terms of their estate plan private is one of several reasons why many people choose to include probate avoidance strategies in their plan.
Probate Basics
Probate is the legal process that is typically required following a person’s death. Probate may serve several different purposes, including:
- Ensuring the decedent’s assets are all identified, located, valued, and eventually transferred to the intended beneficiaries and/or heirs of the estate.
- Providing a legal forum for any challenges to the authenticity of a Will submitted for probate.
- Notifying creditors of the decedent’s death and allowing them the opportunity to file claims against the estate.
- Making sure all tax obligations of the decedent and/or the estate are satisfied.
Reasons to Avoid Probate
Despite the fact that probate can serve a number of purposes, people frequently plan carefully in their estate plan to avoid probate. Why? Some of the most common reasons include:
- Privacy – All documents filed during the probate of an estate are available, upon request, to the general public. In addition, notice of the probate of an estate must be published in a local newspaper to ensure all unknown creditors are aware that probate is underway. If you prefer to keep your financial affairs private while you are alive, why would you want those details made public after your death?
- Delay – Assets that are part of the probate process cannot be distributed to the intended beneficiaries until the conclusion of the process. The time it takes to probate an estate will vary considerably, depending on where the estate is being probated and the size and complexity of the estate itself. All states provide for a reasonable amount of time (typically 4-12 months) within which creditors may file a claim against the estate. The probate of an estate cannot be concluded prior to the end of the statutory claim filing period. Other factors, such as the complexity of the estate assets, the skills and experience of the Executor, federal and state estate taxes or the need to litigate a challenge to the Will can cause the probate process to drag on for months or even years.
- Cost – Probate involves a number of expenses, all of which are paid out of the estate assets. The Executor, or Personal Representative, who oversees the administration of the estate, is entitled to a fee as are attorneys, accountants, appraisers, and other professionals who assist with the probate of the estate. Professional fees, coupled with court costs and related fees, can add up to a substantial sum. As a general rule, the larger the estate, the more expensive it will be to probate. Keep in mind that every dollar spent on the probate process reduces what is passed down to beneficiaries of the estate.
- Challenges – In most states, any “interested” person has the right to challenge the validity of a Last Will and Testament submitted to probate. If a Will contest is filed, the entire probate process effectively comes to a halt while the Will contest is litigated. If the contestant is successful, the Will is declared invalid and the court will look for another valid Will to use to probate the estate. If no other Will is discovered, the state intestate succession laws will be used to probate the estate. If the contestant is unsuccessful, the probate process resumes using the Will initially submitted for probate.
How Do I Avoid Probate?
Now that you know why avoiding probate is such a common goal, here are some strategies you can use to help your estate avoid probate.
- Non-probate assets – Not all assets must go through the probate process. Assets that bypass probate are, therefore, immediately available to be passed down to the intended beneficiary. Along with trust assets (discussed later), some common non-probate assets include certain types of jointly owned property, life insurance proceeds, and funds held in an account designated as “payable on death (POD)” or “transfer on death (TOD).”
- Testamentary Trust – This is a common tool used by parents with minor children as a way to manage and protect the children’s inheritance until they reach the age of majority. A Testamentary Trust is drafted while the creator is alive; however, it is activated by a provision in the Will upon the Testator’s death.
- Pour Over Will – A Pour Over Will is frequently used in conjunction with a Trust to ensure no assets are left out of the Trust at the time of the Testator’s death. As the name implies, a Pour Over Will simply directs that any assets remaining in the Testator’s estate at the time of death are to be “poured over” into an existing Trust. This might include assets acquired right before the Testator’s death, personal property that was not transferred into the Trust already, or other overlooked assets.
- Revocable Living Trust – A Revocable Living Trust is created and activated during lifetime. As the Settlor (creator) of the Trust, you have the ability to name yourself as the Trustee of the Trust and name someone close to you as the successor Trustee. Major assets are transferred into the Trust; however, you continue to control and manage those assets as the Trustee. Because the Trust is revocable, you have the ability to transfer assets in and out of the Trust with ease. A Revocable Living Trust not only avoids probate, but it also makes an excellent incapacity planning tool because your successor Trustee will take over automatically in the event of your incapacity during your lifetime.
If probate avoidance sounds like an estate planning goal you wish to pursue, schedule an appointment to discuss your options with your estate planning attorney.
