When you first begin researching an estate plan, one of the concepts that you are going to come across is probate and non-probate assets. It's one of the first questions a court deals with when looking at someone's estate (and for many people, they are creating an estate plan so they can avoid that probate court). Depending on what assets you have, and the values of your assets, you may not even need to worry about the probate court.
But assuming you are in that category of people who want to at least understand whether their estate would be subject to probate or not, then the corollary question is "How do I avoid probate?" This is the most common question I get because people have read a blog or read an article that's talked about the big bad probate court and that you must do whatever you can to avoid probate court.
If avoiding the probate court is your primary goal, one simple tactic you should be using is to use beneficiary designations on your retirement accounts and other assets that allow for a beneficiary designation. Any account with the beneficiary on it will not have to go through the probate court. But for an asset like a house that doesn't necessarily have a beneficiary on it, how do we protect that asset from the probate court?
A Little Background on Probate Court
The probate court is the court that deals with dead people's estates. When somebody dies, to open a probate, there are two main questions we have to ask:
- Did the person have a valid will?
- Is probate necessary?
If the person had a valid will, then the role of the probate court is to accept the death certificate and the valid will and make sure that their property is distributed under the terms of the will. If they die without a will, that's called "Dying Intestate" and then the court needs to sort things out. The second question, whether probate is necessary, looks at the assets that the person had at the time of their death. If you have somebody who dies with only $500 in a bank account, doesn't own any property, doesn't own anything else, and just has a bunch of credit card debt, you may not even need to open a probate file with the court. The court could say there's not enough money here even to make it a small estate filing. That's why it's important to look at everyone's estate individually and determine whether or not you need to worry about the probate court or not.
5 Strategies to Keep Your Home Out of Probate Court
Assuming you own your home (and possibly other pieces of real estate), there are five common ways that you can consider to keep your house as a non-probate asset:
- Transfer your house into a trust ~ Once your house is in the trust, at the time of your death, the probate court does not deal with the transfer of the house because the house is owned by the trust and the trust document itself will say what happens to that house when you die.
- A Transfer on Death Deed ~ this is not available in all states, so you need to consult with a local attorney in the state where the property is located before you attempt this tactic. What the deed does is upon your death, the property automatically goes to a named person. So this is essentially like giving a beneficiary designation on your house. When you die, the person who's inheriting the house has to file your death certificate, and usually an affidavit of heirship or affidavit of survivorship with the court that tells them that somebody died, here's the deed, and now I'm the legal owner of the property.
- Own the property with somebody else who has a right of survivorship ~ For example, let's say you and your siblings own a cabin and you want to keep it in the family. Well if you all own the property with a right of survivorship, when one of you dies, their share automatically passes to the other siblings so that it's not part of the probate estate of the dead sibling. However, when we get to that last sibling, that's when the property may end up coming into a probate court's purview because there's no one left with a right of survivorship. So we want to make sure before we get to that point, we've done some estate planning with that property.
- Transfer the property to somebody else during your lifetime ~ that way when you die, it's not something you own and the probate court won't have to sort it out.
- Transfer the property to an LLC ~ this is a common tactic if you have rental properties, you can create an LLC or another entity to own the property. What happens then when you die, nothing happens to the property because it's not owned by you. It's owned by that LLC, and then the LLC has provisions on what happens to the shares of the LLC when one of the members passes away.
These are five common strategies and there are two ways you can approach them. You could try to do any one of them yourself, but since you are reading an attorney's blog, you probably know that I'm gonna suggest make sure you work with an attorney. Each of these strategies can be more complicated than you may think, definitely more complicated than we can go through in a short blog. So you want to make sure you're getting the right professional advice when you pick one of these tactics so that your home is not a probate asset.
Next Steps
If you're ready to get started, let's set up a Legal strategy session, a 15 or 20-minute phone call where we can discuss the nature of your assets and your real estate and if there's a way to make them all non-probate assets.
