Estate Planning: Understanding Probate

By Michele Blandino

Everyone is familiar with probate - the legal process that begins with filing a deceased person's will with the local court and ultimately ends with the distribution of property in accordance with the decedent's wishes. What many people don't realize, however, is that unlike death itself, probate isn't necessarily inevitable. In fact, with some careful estate planning, it may be possible to avoid probate altogether.

Before proceeding, it is important to note that the information contained within this article is presented in general terms only. As everyone's personal circumstances are different, it is recommended that you solicit the advice of an estate planning specialist.

As would be expected, there are people who advocate the probate process as well as those who are opposed to it. Those who are in favor of the process point to its role in making sure estates are distributed in the manner in which the decedent intended. Those who are opposed to the process feel it unnecessarily ties up estate assets and only serves to fatten the bank accounts of lawyers.

That is, unless you are able to successfully use a probate avoidance device.

In simple terms, a probate avoidance device provides the legal means by which property can be transferred from the decedent's estate to the named beneficiary(ies) without first going through probate. As would be expected, there are many different types of probate-avoidance devices. We will discuss four of them here.

Living Trusts

Living trusts are very similar to wills in that you name beneficiaries to receive specific property upon your death. These instruments are revocable, meaning you can change your beneficiary designation as often as you like while you are alive. On the other hand, living trusts are more complex to establish and maintain, and ultimately, more expensive.

Joint Tenancy

Property held in joint tenancy usually avoids probate because this type of ownership provides "right of survivorship" meaning the survivor has an automatic right to inherit the property of the decedent. There are certain requirements to establish joint tenancy including the need for all involved to own equal shares of the property and to share equally in all income, profits and losses from their property.

Life Insurance

In most cases, proceeds from a life insurance policy are paid directly to the beneficiary(ies) named within the policy without first going through probate. There is one exception to this: when the estate is named as the beneficiary. In cases such as these, the proceeds will first need to pass through probate before being distributed to the final beneficiaries.

Pay-on-Death Designations

As implied by the name, pay-on-death designations allow you to formally name another person(s) to receive specific property - or whatever is left of that property - when you die. This type of designation is most commonly used for bank accounts and holdings of government securities.

A Final Word

Are any of these devices right for you? While there is a good chance that you can find at least one method to help avoid probate, only a qualified estate planning specialist can tell you for sure. Before making any decisions regarding the distribution of your property, be sure to solicit the advice of a professional.