Probate: What It Is and How to Avoid It

Denis P. Dillon
Director, Trusts & Estates Department
September 27, 2012

We constantly hear from advisors that we should plan our affairs in such a way as to avoid probate. What does the phrase mean and what property is subject to the probate process? What planning is needed to avoid the process? This article will answer these questions.

Probate is a formal public process. If a person dies with probate property, then a probate estate is “opened.” This process begins with filing the will, death certificate and Petition for Estate Administration at the Probate Court.  Thus begins a paper pushing process, which includes the filing of a multitude of documents, a flurry of notices sent to interested parties (i.e. creditors, family members, beneficiaries of the will, etc.) It is a labor intensive and public process.

If no one protests, the Probate Court allows the will and appoints the executor, the person charged with the responsibility of carrying out the terms of the will. Notice of the appointment is provided to persons named in the will and family members. If the decedent did not have a will, then family members receive notice. Notice of the appointment is also published in a local newspaper.

The executor must complete an inventory of the probate property. The executor must also account for the financial activity in the estate. The executor files the inventory and the accounting with the probate court. Those who are named in the will also receive copies of the accounting and notices from the court when these documents are filed. (The accounting essentially is a check book register showing all activity in the estate, income and expenses and ultimately distributions to those named in the will.) The entire process generally takes 12 to 18 months, but large and complicated estates can take longer.

Probate properties includes all assets titled in the decedent’s individual name. Usually joint property is not considered a probate asset, neither are assets which have a beneficiary designation such as life insurance, retirement accounts, annuities, or pay on death accounts, (a special type of account which provides that upon the owner’s death title to the account passes to a beneficiary named by the owner), provided the joint owner or beneficiary is alive at the decedent’s death. Otherwise, the asset is probate property.  One way to avoid probate is to hold all assets jointly, or use pay on death accounts, and where applicable have beneficiary designations in place.

However, it may be cumbersome to hold all your assets jointly. Furthermore, what happens if a joint owner predeceases you? In such a case the remaining joint owners will take the property.  For example if a parent places a bank account in joint names with her three children and one child predeceases, the remaining two children will take the property. Unless the parent changes the account, the predeceased child’s children (i.e. the grandchildren) will not share the account.

Furthermore, in many cases it may not be practical or wise to name children as joint owners. What if a child runs into trouble – divorce, debt, or injures someone in an accident?  This could prove troublesome. A pay on death arrangement may eliminate this problem but may not eliminate the problem of a predeceased child. What to do?

An estate planning trust can be designed to avoid the probate process and solve the problems associated with joint accounts. A trust can be designed to avoid probate and solve the problems associated with joint accounts. A trust is essentially a fiduciary arrangement between three parties: the grantor, the person who creates the trust; the beneficiary, the person(s) who benefit from the trust; and the trustee, the person(s) who manage the trust. Generally beneficiaries include the grantor’s family. Typically the person that creates the trust acts as original trustee and names an alternate. This type of trust has three or four distinct purposes: first, a mechanism to manage assets for the grantor during any incapacity; second, a substitute for a will; third, probate avoidance; and finally it can provide estate tax benefits.

Once the trust is created it is critical to change title of the assets to the name of the trust. If this is not done, then probate is not avoided. All the assets, real estate, bank accounts, automobile(s), etc., are titled in the name of the trust. If even one asset is missed probate will be necessary. Therefore it is important to change title to all your assets once a trust has been created. The fully funded trust is an effective and efficient technique to avoid probate.