How can Probate be avoided?

As promised in the previous discussion of probate, we will now address the topic of avoiding this thing called probate.

But first, a pop quiz.  True or False:

1. Probate is not necessary if you die without a will?
2. If you have a will, then probate will be necessary?
3. Probate is necessary if you own property that is worth more than $1million?

If you answered false to all of the above, then you would be right – and really smart!

In a nutshell, determining if probate is necessary does not depend on whether or not you have a will or how much property you have; instead it is determined by how the property is titled. There are 3 basic ways to title property

1. in your name only
2. jointly with another
3. in trust for another

Property in your name only

Having property in your name only gives you maximum control and protection over that property, but it also presents the most problems when you die.  Under this scenario, more likely than not, probate will be necessary to transfer your property over to your beneficiaries, even if there is a will.  As mentioned previously, probate can be expensive and which could reduce the amount of assets available to be transferred to the people you want to have them.

So what do you do?  Quick and easy answer: title your property so that it automatically goes to your beneficiaries.  The most common way to do this is to hold the property jointly with another person.

Property titled jointly with another person

Bank accounts, securities, automobiles, and real property can all be owned by 2 or more people.  When one person dies, the survivor continues to own their share of the property.  But what about the dead person’s share of the property – who owns that?  Let’s look at a few examples:

• The Joint Bank Account:  Unless the agreement with the bank states differently, a joint bank account usually has rights of survivorship, which means that when one account holder dies, the surviving account holder will own the account completely.  Many married couples used joint bank accounts.
• The Beneficiary Account:  If you are unmarried, or you do not want another person to have full access of your bank account until after you die, then you can open a beneficiary account.  There are 2 types of beneficiary accounts: (1) In Trust For (“ITF”), and (2) Pay on Death (“POD”).  In an ITF account, you direct the bank to hold your account for one or more beneficiaries that you name.  In a POD account, you have a contract with the bank that directs the bank to “pay on death” all of the money in the account to one or more beneficiaries that you have desiginated.
• Joint Tenants of Real Property:  If you have real property that you own with another person, it is important to inspect the deed of that property to see how the property is titled.  If you own it as joint tenants, and if one person dies, the surviving person will own the property 100% and nothing further needs to happen to establish that ownership (i.e., probate is not necessary).  On the other hand, if you own the property as tenants in common, then the property share of the person who dies will go to the person(s) named in the will.  If there are 2 or more people owning property, and there is no mention on the deed as to how the property is held by those people, the law will presume the property is held as tenants in common.  If you own real property in your name only or as a tenant in common, some sort of probate will be necessary in order to transfer the property to the beneficiary.

Property held in trust for another person

Have you heard the terms “revocable living trust” and “inter vivos trust?”  They describe the same thing – a trust that is designed to care for your property during your lifetime and then to distribute your property once you die without the need for probate.  The trust only works for those items you actually place in the trust.  To avoid any mistakes or any left out property, a pour over will is usually created along with a revocable living trust.

Now that you know how to avoid probate – should you?

There are several pros and cons to avoiding probate.  In a few situations, simply having a will may be enough.  Estate planning is not an “all or nothing” choice – you can arrange your estate to best fit your situation.  When dealing with revocable living trusts, determining the best way to title property and deciding whether to avoid probate, it is usually advisable to talk with an experienced estate planning attorney.  Peace of mind can go along way in the estate planning process…

Medals to Spare?

Somewhat off topic, but if you are a person interested in charitable activities, then this one is for you.

As some of you may know, I just completed the Virginia Beach Rock N’ Roll Half-Marathon during the Labor Day holiday weekend.  Yay, me!  My first half-marathon was earlier this year at the Nashville Country Music Half-Marathon.  At both races, I received a “finisher’s medal” – a medal given to each and every person who crosses the finish line, regardless of time.  Its a great idea – you get a wonderful sense of accomplishment strutting around with a medal hanging from your neck… even if you cannot walk straight for the next few hours…

In the October 2008 Runner’s World, there is a wonderful article that offers a suggestion on what to do with all those clunky medals once they start collecting dust with your old and discarded running shoes.  Donate them to Medals4Mettle, a nonprofit organization that collects race medals and donates them to people battling illnesses.  According to the article, most medals go to children’s hospitals.

“Dr. Walsh, medical director of the cardiac transplant program at St. Vincent Hospital in Indianapolis, hands out about five medals a year to patients who have traveled a particularly difficult road.  ‘I say: I would like to give you this medal.  It’s my recognition of your struggle,’ Dr. Walsh says.  ‘Later, my patients have told me that it meant the world to them to have their doctor acknowledge how hard their battle is.’”

In reading the article, I felt particularly blessed to be physically able to run both half-marathons.  I will be donating both of my medals, hoping that it can lift the spirits of a person who does not have the luxury of being able to run.  A quote in the article says it best: “The children who battle deadly diseases are far more deserving of this medal than I am … they deserve to be honored and cured.”

If you are a runner and have medals just hanging around, and you would like more information about Medals4Mettle, visit www.medals4mettle.org.

What is Probate? A Brief Introduction.

So we probably all have a pretty good idea what a will is – but what is this thing called probate? And does it apply to you? And, while we’re at it, what is all this talk about avoiding probate?

Probate is basically the legal process of transferring property after a person’s death. Well, what about the will, you may ask – isn’t the will used to transfer the property? Technically, yes, but have you heard the expression “probating the will?” When a person “probates a will,” what they are doing is showing to the Probate Court that the decedent (the person who died) followed all legal formalities when they made their will.

If the will was done right, an executor is named to settle the estate. The typical duties of an executor include collecting all of the decedent’s property, paying all debts owed by the estate, collecting any income or money owed to the estate, settling any disputes, and finally distributing all remaining property to the persons named in the will (a.k.a., heirs).

If the will does not name an executor, then the Probate Court will name a person to settle the estate. This may or may not be the same person the decedent would have wanted to settle his/her affairs, but this is just another reason why having a proper will is important.

The process of “avoiding probate” is usually done with the intention of saving everyone involved a lot of time and money. The process of probate usually carries with it several layers of expenses, all of which are paid out of the estate. The typical probate costs include executor/administrator fees, attorney fees and court fees. Obviously, the less the probate expenses, the more property there will be to pass on to the people to whom the decedent wanted it go.

UPCOMING BLOG POST – How can Probate be Avoided?