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When you die, any assets you wish to transfer via your will must pass through probate. However, probate proceedings can be long and expensive and have a number of other disadvantages. In this guide, we will briefly overview the probate proceedings, and discuss ways to mitigate them by passing assets to your intended beneficiaries outside of this process.

A brief overview and probate and its proceedings

It must be pointed out from the outset that one does not simply avoid probate. Whenever someone dies, regardless of whether they left a will or died intestate, their estate must undergo probate before any of their assets can be distributed to their beneficiaries or heirs. In brief, this is how the process works. 

  1. Proof of death must be presented, and the probate will determine the validity of the decedent’s will. 
  2. The person appointed to be the estate’s executor in the will must be approved by the court, or the court will appoint an administrator instead if the decedent died intestate.  
  3. The decedent’s assets will be marshaled (i.e., identified, inventoried. and appraised). 
  4. Creditors, beneficiaries, and other potentially interested parties will be notified of the commencement of the probate process, giving them an opportunity to submit any claims against the estate or contest the will.
  5. Any debts, tax obligations, and liabilities that survive the decedent’s death will be settled. 
  6. Estate taxes, fees, and costs associated with the probate process are paid.
  7. Bequests are distributed to your beneficiaries, and then the contents of your residuary estate, if any.

Probate avoidance and its advantages 

At the outset, it is critical to note that one does not simply avoid probate. Rather, specific assets can either become part of your probate estate (referred to as “probate assets”) or pass outside of it your death (referred to as “non-probate assets”). Simply put, probate assets are those owned solely by the decedent at the time of their passing which have no designated beneficiary. The following are the main advantages to passing assets outside of probate:

More privacy. Probate requires the submission of various documents and information to the court, providing a detailed account of the decedent’s assets, debts, and beneficiaries. This information then becomes part of the public record, which can lead to disputes among beneficiaries and additional exposure to the claims of potential creditors.

Less court involvement. Because assets that become part of your probate estate fall under the purview of the probate court, any disputes regarding the disposition and distribution of those assets will be settled by the probate court. In doing so, the probate court will apply state laws, which can often result in the assets ultimately being transferred to beneficiaries you did not intend for them to receive.

Quicker and smoother transfer of assets to your beneficiaries. Probate proceedings can take from several months to well over a year, during which time the assets you want distributed to your beneficiaries will be unavailable to them. By contrast, non-probate assets can transfer to your beneficiaries immediately after death.  

Cost savings. The longer the probate proceedings drag out, the more probate court costs and fees to executors, attorneys, accountants, etc., will accumulate. These costs will generally be taken out of your probate estate, leaving less assets to pass on to your beneficiaries.

Tax savings. One of the often-cited benefits of passing assets outside of probate is that they avoid taxes imposed on probate estates. However, it is essential to note that federal estate tax exemption thresholds are very high ($12,920,000 for individuals in 2023), and there are no federal inheritance taxes. Furthermore, as of this writing, less than a third of US states impose estate taxes, and less than a half dozen states impose inheritance taxes. Conversely, tax exemption thresholds for gifts you transfer while alive are far lower. So unless you are passing on a very sizable estate, as far as taxes are concerned, there are more advantages than disadvantages to passing assets through probate.

Five strategies for passing your assets outside of probate 

  1. Using joint tenancies with rights of survivorship (JTWROSs). A JTWROS is where there are multiple owners with equal rights in the same property, and when one of the owners, the decedent’s share will automatically transfer to the other owner(s), thereby bypassing probate. Since there are several forms or property that cannot be owned or transferred this way (the specifics vary by state), it is advisable to consult with a professional before using these. 
  2. Using inter vivos trusts. Inter vivos trusts are trusts that you establish and fund while you are alive. As long as you ensure that the trust is revocable (i.e. you retain the right to change the beneficiaries or modify its terms until you die), assets placed in such a trust will not become part of your probate estate. It should be noted, however, if you only want the beneficiaries to start receiving funds from the trust once you die, using living trusts can have certain disadvantages relative to using testamentary trusts (i.e., trusts created in one’s will), such as the costs associated with the creation of living trusts and the management of their assets while you are still alive. 
  3. Using payable on death (POD) and transfer on death (TOD) accounts. PODs accounts are checking/savings accounts, cash deposits, etc., that you establish and fund while you are alive, and are structured such that they immediately pass to the beneficiaries upon your death. TOD accounts are similar, except that they are generally used for investments or securities. Other than probate avoidance, one the main reasons for using such accounts is that one can change their beneficiaries at any time. In contrast, one would need to amend their will to change beneficiaries of probate assets, which can be much more expensive. 
  4. Using life insurance policies and retirement accounts. Like POD and TOD accounts, you can designate beneficiaries who will receive proceeds from your life insurance policies or retirement accounts while alive, and the assets will transfer only upon your death. Like TODs and PODs, you have the flexibility to change the beneficiaries at any time until you die. Note that life insurance policies and retirement accounts typically have significant advantages over PODs and TODs, particularly when it comes to taxes. 
  5. Qualifying for small estate/summary probate proceedings. Most states have some form of summary probate proceedings for estates that are valued under a certain threshold. Summary proceedings are relatively quick, informal, and can involve little to no court involvement. By using lifetime gifts (which can be transferred through inter vivos trusts and other vehicles listed above), you can ensure that your probate estate’s value will be low enough to qualify for these summary proceedings, thereby avoiding probate altogether. However, because the thresholds can be as low as $15,000 and as high as $200,000, the advantages of using this strategy will be highly state-specific.

Important disclaimers

Before we conclude, it must be emphasized that not all of these probate avoidance vehicles/strategies benefit from all the probate-avoidance advantages discussed previously. For example, while POD and TOD accounts benefit from not having to go through probate and can therefore pass directly to the named beneficiaries, they are still subject to federal and state taxes that would apply to probate assets. Furthermore, while this particular guide addresses the disadvantages of probate and ways to avoid it, there are numerous situations in which its disadvantages far outweigh its advantages. 

As you can see, the particular strategies to use in drafting your will and planning your estate is a very complex topic, and will depend on a wide variety of factors, such as the laws of your state, the types of assets and accounts you want to leave your loved ones or your favorite charities, and many more. Through AAL’s directory, you can find many skilled attorneys with extensive experience in practicing Trusts & Estates law who can be invaluable in helping you craft an estate plan best suited to your particular circumstances and desires.

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