You may hear suggestions about estate planning that are coming from people with a little bit of information. Their advice can sound reasonable, but there can be problems lurking just under the surface. This applies to probate avoidance notions, and we will look at the subject in this post.
Court Supervised Estate Administration
If you use a will to direct asset transfers after you die, the executor that you designate will admit the will to probate. The full probate process is necessary if the value of the estate exceeds $184,500 in value; there is a streamlined process for smaller estates.
This process serves a purpose, because there is oversight, and creditors are given an opportunity to seek payment before the assets are distributed. Plus, if someone wants to contest the validity of the will, they can make a case while the estate is being probated.
At the same time, if everything is in order, probate creates hassles for the rightful inheritors. It is time consuming, expenses consume a fair portion of the estate, and anyone that is interested can dig into the probate records, so there is a loss of privacy.
Payable on Death Accounts
Now that you know why people try to avoid probate, we can examine a couple of the transfer methods that are not subject to this process. A payable on death account is a bank or brokerage account with a beneficiary. In California, there is a payable on death motor vehicle registration option.
If you establish a payable on death account, you add a beneficiary that will inherit the account after your passing. While you are living, they would have no access to funds. When the time comes, the beneficiary presents the death certificate to the institution, and the funds are released.
This sounds like a neat and tidy solution, but this approach has gone awry on many occasions. Sometimes a well-meaning person will name one beneficiary. The beneficiary could be receiving means-sensitive government assistance at the time of death or be incompetent, or have a creditor issue. Also, the donor of the account may have verbally instructed the beneficiary to distribute the resources in a certain manner.
From a legal perspective, the assets belong to the beneficiary as soon as the transfer takes place. If the beneficiary is receiving government assistance, the assistance could be impaired, if they have a creditor issue, the gift may end up with the creditor, or if they decide they do not want to follow the instructions to share the resources, they are free to do as they wish.
Joint Tenancy With Right of Survivorship
Another flawed probate avoidance approach is the utilization of joint tenancy with right of survivorship. To explain through the use of an example, let’s say that you own your home, and your son is your only child. Your spouse is deceased, and you intend to leave the home to your son.
Someone suggests that you establish a joint tenancy. You change the home ownership paperwork to add your son as a joint tenant. If you die first, your son will inherit the property, and the probate court will not be involved.
This sounds logical, but there is a significant risk. Your son is a good person, but he is known to make poor personal and financial decisions. When you establish the joint tenancy, he will own half of the property while you are still living.
If he is sued, or if he gets into a marriage that ends in a contentious divorce, his portion of the property would be vulnerable. Plus, if you decide that you want to sell or mortgage the property, you could not act without your son’s approval, and he would be entitled to a share.
Even among spouses, joint tenancy is not a good idea. Most spouses own their home as joint tenants and if one spouse has a stroke or otherwise becomes mentally disabled, the well spouse cannot sell the home, refinance it or get a reverse mortgage to provide care for the ill spouse. That’s because joint tenancy only works at death, not disability. The ill spouse would be forced into requesting a court supervised conservatorship in order to be able to legally take action on behalf of the disabled spouse.
A Sound Probate Avoidance Solution
Probate avoidance is a great idea, but you should do it in the most prudent manner. A revocable living trust is a legal device that will facilitate transfers outside of probate. You maintain control of the assets while you are living, so this can be the ideal solution.
Schedule a Consultation Today!
When you discuss your options with an attorney, you can be sure that you are acting on solid information. Your plan will be properly constructed, and there will be no unpleasant surprises later on.
If you are ready to have that conversation, you can schedule a consultation at our Burbank, CA estate planning office if you call us at 818-937-2335. You can alternately send us a message through our contact form and we will get back in touch with you ASAP.