Avoiding probate is normally one of the primary objectives of most clients developing an estate plan. Probate is the legal court proceeding that may be necessary after an individual’s death to allow the assets of the individual who passed away, referred to as the decedent, to transfer to the decedent’s family or other individuals named in the decedent’s Last Will and Testament. However, with a properly implemented estate plan, it is possible for the entire probate process to be avoided.
When a decedent passes away, most people think about the decedent having a Last Will and Testament, which is commonly referred to simply as a Will, that provides who is to inherit from the decedent. However, in this day and age, a decedent’s Will does not tell the full story of who is to inherit from the decedent, and in some cases, may have no control over who inherits. This is because upon death, the decedent’s assets will fall into two divergent categories: probate and nonprobate, and a decedent’s Will only controls the probate category.
Initially, the titling of each asset owned by the decedent must be reviewed to determine which assets belong in the nonprobate category. The nonprobate category consists of assets that transfer outside of the probate court proceeding based upon how the assets are titled and generally fall into one of the three following subcategories.
First, the assets are reviewed to determine if any of the assets are owned jointly with rights of survivorship. Examples of this include joint bank accounts and real estate owned jointly with rights of survivorship. This joint ownership itself provides for the asset to transfer solely to the surviving joint owner upon the decedent’s death, outside of the probate court proceeding.
Second, for any assets remaining that do not transfer by joint ownership, meaning assets solely owned by the decedent at the time of death, these assets are reviewed to determine if any beneficiaries are named. Beneficiaries are referred to by different names depending on the asset. For example, life insurance, retirement accounts, and annuities, are simply called beneficiary designations, while beneficiaries for real estate, vehicles, and nonqualified investment accounts, are call transfer on death (TOD) designations, and beneficiaries for bank accounts are called payable on death (POD) designations. While the actual name in which the beneficiary designation is referred to will vary depending on the type of asset, they all practically serve the same purpose—to designate who is to receive the asset upon the decedent’s death. If an asset has a beneficiary named, the asset will transfer to the beneficiary, outside of the probate court proceeding.
Third, for any assets remaining that are not transferred by joint ownership or beneficiary designation, these assets are reviewed to determine if any are owned by a trust. A trust is a legal document that can serve many different purposes but may often times be used as a substitute for a decedent’s Will. There are many different types of trusts, but generally trusts fall into one of two main categories: revocable or irrevocable. Revocable trusts may be revoked, amended, or changed by the individual who created the trust, while irrevocable trusts may not be revoked or amended once created. No matter the specific type of trust, any assets titled in the name of a trust are administered pursuant to the terms of the trust, outside of the probate court proceeding.
After determining the assets that fall into the nonprobate category, the only assets that will remain are assets titled solely in the name of the decedent without any joint owner or beneficiary named and no trust involvement. These assets by default then fall into the probate category and must be administered through the probate court proceeding upon the decedent’s death.
If the decedent has a valid Will, then the decedent’s probate assets will transfer through the probate court process to those individuals named in the decedent’s Will. This process is handled by the executor named in the decedent’s Will, normally with the assistance of an attorney. If the decedent does not have a valid Will, then the state in which the decedent resided at the time of death will have a law that provides who is to inherit the decedent’s probate assets, which are normally the decedent’s closest relatives.
Utilizing joint ownership with rights of survivorship, beneficiary designations, and trusts are all possible options for avoiding probate. However, depending on the assets involved, each option carries its own set of pros and cons. Therefore, anyone interested in avoiding probate should seek the advice of an attorney who can assist with structuring an estate plan in the most efficient way possible based upon that individual’s unique desires and circumstances.
This is a general summary of the law and should not be used to solve individual problems as slight changes in the fact situation may require a material variance in the applicable legal advice.
Mark A. Wagner, Esq.
Canton and New Philadelphia offices