This question usually starts from the first question I commonly get, which 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 we have to do whatever we can to avoid probate court.
When assembling your estate plan, the first tactic you can use is to use beneficiary designations on your accounts. Any account with a beneficiary designation on it will not have to go through the probate court.
Probate Court
But an asset like a house doesn't normally have a beneficiary on it, so how do we protect that asset from the probate court? First off, a little bit of background about probate court. The probate court is your local 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?
For the first question, 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 the bank account, doesn't own any property, doesn't own anything els,e 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. 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.
Avoiding Probate Court for Your House
Let's say you own a piece of real estate, you own your home, and you are worried about keeping your house out of the probate court. There are five common ways that I see that you can keep your house out of the probate court:
- Transfer your property 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.
- In certain states, you can do what's called a Transfer on Death Deed ~ the deed says that upon your death, the property automatically goes to a named person. So this is essentially like giving a beneficiary designation on your house. What happens when you die is 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 ~ if you and your siblings own a cabin, and you want to keep it in the family, 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 does not become part of the probate estate. However, when we get to that last sibling, that's when the property may end up coming into a probate court's purview. 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.
- 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.
You could try to do any one of them yourself, but you probably know that as an attorney, I'm going to suggest that 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 video or blog post. 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, you can set up a Legal Strategy Session and we can hop on a 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.
