Many postmortem asset transfers are subject to the probate process. In the state of New York where we practice law, probate matters are under the jurisdiction of the Surrogate’s Court. This legal process provides protections for creditors, but there are drawbacks that negatively impact the heirs when an estate is being probated.
The first one is the fact that people that are in line for inheritances must play a waiting game. A simple, uncomplicated case will typically take about nine months, and more complicated cases can take much longer. For example, the Anna Nicole Smith estate dispute with the Marshall family was stalled in probate for a number of years.
This is one drawback, but the other major negative is the fact that numerous different expenses enter the picture during probate. The executor of the estate is entitled to payment, and in many cases, the executor will bring in an attorney, so there are legal fees. Property must be liquidated, so there are appraisal charges and commissions in some cases. When you add in the incidentals, you are looking at a noticeable portion of the estate being consumed during the process of probate.
If you were to utilize a last will as your vehicle of asset transfer, probate would be a factor. However, there are some types of asset transfers that are not subject to probate. You can intentionally utilize these methods in an effort to avoid probate, but in some cases, it just happens organically.
Life Insurance Proceeds
When you take out a life insurance policy, you name a beneficiary, or multiple beneficiaries. After you pass away, if the terms of the policy have been met, the company would transfer the proceeds to the beneficiary or beneficiaries. This transfer would not be subject to the process of probate.
Joint Tenancy With Right of Survivorship
The best way to explain joint tenancy with right of survivorship is through a simple example. Let’s assume that you own your home outright, and you would like to leave it to your son. If you have a will, and you name your son as the inheritor, he would have to wait out the probate process.
To prevent this, you could add him to the title or deed of your home. This is called the condition of joint tenancy, and it comes with right of survivorship. After you are gone, your son would assume total ownership of the home, and the Surrogate’s Court would not be involved.
Payable on Death Accounts
When you open up an account at a bank, you could tell them that you would like to add a beneficiary. This is called a payable on death or transfer on death account. We should point out the fact that many brokerages offer this option as well.
If you go this route, while you are living, the beneficiary that you add to the account would not have access to the resources. After you die, the beneficiary would notify the bank that you have in fact passed away by showing them your death certificate. The beneficiary would then assume ownership of assets that remain in the payable on death account free of probate.
Individual Retirement Accounts
An individual retirement account is similar to a payable on death account on this level. When you are gone, the beneficiary that is named on the account would assume possession of it. Probate would not be necessary.
Revocable Living Trusts
Many people would say that the best probate avoidance tool is the revocable living trust. When you establish this type of trust, you can act as the beneficiary and the trustee while you are alive. The point of the trust is to serve as an estate planning device, so you name successors to assume these roles after your passing.
When it comes to the trustee, you can name someone you know, but it can be preferable to use a professional fiduciary entity like the trust section of a bank or a trust company.
You fund the trust with assets that will comprise your estate, and you leave instructions with regard to the way that you want them to be distributed to the beneficiaries. When the time comes, the trustee will distribute your assets in accordance with your wishes, and these distributions would not be subject to probate.
Attend a Free Estate Planning Seminar!
If you would like to learn more about probate and probate avoidance strategies, attend one of our seminars. They are being offered free of charge, and you can visit our seminar schedule page to get all the details.
Mark S. Eghrari, Estate Planning Attorney
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