Simple Steps to Take to Avoid Probate

Probate is the court proceeding where a will is verified, and an estate is administered according to the terms of the will. Probate is also used where no will exists, in which case an estate will be administered under the terms of state laws. The process includes the collection of assets, the liquidation of liabilities, the payment of taxes, and the distribution of property to heirs. Furthermore, each state requires probate as this process allows the court to check for potential fraud in a person’s last will and testament and ensure that the assets within a will are properly distributed.

Though probate is a common function of state courts, this process is both time-consuming and costly. For example, in the District of Columbia, once you file a will in court, it takes between 9 – 12 months for the court to close the case. In addition, the court costs can equal up to 10 percent of your assets. When combined with attorney fees, your beneficiaries will receive much less than the total value of your assets.

Many people think that simply creating a last will and testament will allow their assets to avoid probate. Unfortunately, this is not the case. The whole point of probate is to allow the court to prove that a will is valid. Thus, listing the beneficiaries to your estate in a last will and testament is useful. However, doing so does not protect your assets or family from the probate process. Creating a last will and testament cannot shield your family or assets from probate. But there are a few strategic steps you can take to help avoid probate including:

• Hold real property jointly
• Create a revocable living trust
• Create pay-on-death accounts and registrations; and
• Gifts

Ways to Avoid Probate

Hold Property Jointly

A common and easy way to avoid probate is to add a joint owner to financial accounts. These accounts typically include a bank account, investment account, or deed to real estate. The benefit of adding a joint owner to your assets is that if you pass away, the asset automatically transfers to the co-owner without having to go through probate. However, you must explicitly designate the co-owner to ensure that you receive the benefits that come with this tactic. Below are three common ways to register assets jointly so your assets can avoid probate.

Joint Tenancy with Right of Survivorship

If you own property that is in joint tenancy when you die, the assets automatically go to the surviving party without having to pass through probate.

Tenancy by the Entirety

Tenancy by the entirety avoids probate in the same way as joint tenancy with right to survivorship. However, this option can only be used by married couples. Additionally, certain states allow same-sex couples to use this option. However, the couple must register with the state as domestic partners before using tenancy by the entirety.

Community Property with Right of Survivorship

Another option to avoid probate for married couples in Alaska, Arizona, California, Idaho, Nevada, Texas, Wisconsin, and California is community property with right to survivorship—California allows this option for same-sex couples. If you co-own a property under community property with right to survivorship, when one partner passes away, the asset is automatically transferred to the surviving party.

Each of these joint ownership options can help you avoid the probate process. However, there are a few drawbacks to adding a second owner to your financial assets.

First, in most scenarios, adding a joint owner to a deed or financial account will be considered a taxable gift. Furthermore, you must report this gift to the IRS on a federal gift tax return.

Secondly, if a joint owner is sued or gets a divorce, the assets held jointly may be at risk. In this care, creditors or the divorcing spouse may look to take these shared assets.

Third, when a joint owner passes away, half or all of the joint assets may be included in the estate of the deceased owner for tax purposes.

Finally, if you are in a second or later marriage and have children from a previous marriage, issues could occur from adding your current spouse as a joint property owner. For example, you may want to leave your property to your surviving spouse initially and then when your spouse dies, this property would get transferred to your children. However, if you add your current spouse as a joint property owner, they are free to do whatever they want to with the property once you pass away. This could mean that your current spouses children, their new spouse, or other entity could receive the assets instead of your children.

Create a Revocable Living Trusts

One of the most common ways to avoid probate is to create a revocable living trust. A revocable living trust allows you to place your assets and property in the trust. Furthermore, the trust is managed by a trustee. The trustee is someone you designate who will manage the assets and distribute them once you pass away. You can name yourself as the trustee to the trust. However, to avoid probate, you must designate someone else to manage the assets. The reason for this is that once you fund the trust, the trustee will own the trust property. After you die, the trustee must distribute the assets to your beneficiaries. Similar to a last will and testament, you will specify within the trust documents what property will go to which beneficiaries.

Furthermore, ensure that when you are funding your trust, you re-title the assets you transfer into the trust. You must re-title the trusts out of your name and into the name of the trust. Any assets not placed in the trust or are not titled in the trust’s name will go through probate. One final benefit to creating a revocable living trust is that the assets and the dollar amount in the trust will not become public record. This may seem obvious. However, it is a benefit as if your assets go through probate, they will become part of public court records.

Create Pay-on-Death Accounts and Registrations

Another way to avoid probate is to transfer your bank accounts, retirement and investment accounts, and annuities to a pay-on-death account. This type of account allows you to list a beneficiary so that when you pass away, the monies in these accounts will automatically be transferred to the beneficiary. This is the easiest way to avoid probate. You simply have to add the name of your beneficiaries to your account names. However, it is important to know that any assets outside of these accounts or deeds will still have to go through probate once you pass away if you do nothing else.

Furthermore, certain states allow you to use this tactic for real estate or vehicles. In this case, you would create a transfer-on-death deed that allows you to continue to own the property you list in the deed. As soon as you die, the assets will be transferred to the beneficiary of your choice. Currently, the District of Columbia and Virginia allow transfer-on-death deeds for real estate and vehicles while Maryland prohibits the use of these deeds.

Gifts

The most extreme way to avoid probate is to simply gift your assets to family or friends. This scenario does not mean that you have to give away every single asset you own. However, the larger the asset, the more it will cost to go through probate. Thus, even if you do not give away every single asset you own, by transferring a few assets through gifts, you will lower the cost of probate. Furthermore, you will need money to live on until you pass away. So, giving only a portion of your assets away before you die is much more practical then giving away your entire estate.

In 2020, you can give $11.58 million of property away during your lifetime before you have to pay federal gift tax. You can give away millions of dollars of property before paying taxes. However, the beneficiary of your gift will have to pay tax on assets they receive once the amount exceeds $15,000 in a calendar year. Finally, be aware that individual states can have their own estate and gift tax. These tax rates are typically less than the comparable federal taxes.

Final Thoughts

Overall, it is extremely important that you consult an attorney that understands probate and the estate administration process to ensure that you use the proper documents and place your property in the correct accounts. Doing so allows you to be confident that your assets and family will not have to spend the time and money required to go through probate. With over 20 years of experience, Antonoplos & Associates estate planning and probate attorneys have the knowledge and experience required to assist clients with avoiding probate in DC, Maryland, and Virginia. Furthermore, Peter Antonoplos, founder and managing partner of Antonoplos & Associates has an LLM in Taxation from Georgetown University Law Center. With this knowledge, Peter can maximize the cost savings you receive by avoiding probate in DC, Maryland, and Virginia.

Contact our DC Law Office for More Information

Finally, for more information on how to avoid probate, contact us at 202-803-5676. You can also directly schedule a consultation with one of our skilled attorneys. Additionally, for general information regarding probate law, check out our blog.