How To Avoid Probate

Probate is the court-supervised process that takes place when someone dies owning assets in their name. Even with a last will and testament, probate is necessary. 

Because probate can be expensive and time-consuming, many people use a revocable living trust approach to avoid burdening their survivors with the hassles, time, and expense of the probate process. This article addresses the steps you can take to avoid probate.

Step 1: Create a Living Trust Entity

• Set Up a Revocable Living Trust: By creating a living trust and having your assets titled in the name of the trust, you establish a legal instrument that allows a defined trustee to manage those assets.

• Define Trustees: You will be the initial trustee and designate a successor trustee who will take over as the primary trustee upon your incapacity or death. 

• Immediate Action by Trustee: The primary trustee can secure, maintain, sell (if necessary), and distribute assets without involvement from a probate court.

Designations to Make

• Who will receive the trust assets after you pass away.

• Who will be in charge of settling your trust.

• The rights and duties your trustee will have in settling your trust.

There are no costs or overhead to manage a living trust during your lifetime, similar to an LLC; it’s a disregarded entity with the IRS, so no tax filings or annual reports are necessary.

Step 2: Transfer Assets from Your Name to Your Trust

To avoid probate, it is imperative that the trust is funded properly. Assets that may need to be transferred to or re-titled in the name of the trust include:

• Real estate

• Motor vehicles, boats, airplanes

• Business interests

• U.S. Savings Bonds

• Certificates of Deposit (CDs)

• Non-retirement investment accounts

• Individually held stocks and bonds

Funding the Trust

Investigate whether your state or county/parish charges a transfer fee or tax for retitling your assets—many online providers can make this process easy.

Your Pour-Over Last Will & Testament will cover the transfer of your assets through probate to your living trust as a last resort.

Ensure the Trust is Funded Properly

All titled assets should be transferred to the trust as soon as possible, and new property or titled assets should be acquired in the name of the trust to avoid future transfers.

Some assets can have beneficiaries named under Transfer On Death (TOD) or Payment On Death (POD) to avoid probate.

Assets to Consider

• Real estate

• Bank accounts

• Savings bonds

• Certificates of Deposit (CDs)

• Investment/brokerage accounts

• Individually held stocks and bonds

• Titled motor vehicles, watercraft, airplanes, etc.

Most people name a spouse or child as the beneficiary of such accounts, but you may choose to name your trust as the beneficiary to manage distributions for minors or other beneficiaries.

Do Not Immediately Re-title Your IRAs, 401(k)s, Insurance Policies, and Annuities

• Review who you have named as the beneficiaries.

• These accounts are paid directly to the beneficiaries upon your death and mostly avoid probate.

• Some people name their trust as the beneficiary to manage the distribution rules around lump sums, but consult a tax professional before making this change to avoid tax deferral impacts.

Communicate with Successor Trustees

• Ensure all listed successor trustees are aware of the possibility of being called upon to serve as trustee.

• Inform them where to find a copy of the trust.

• Some online platforms provide a dashboard to notify your trustee with educational material on the role.

Record Keeping

• Begin keeping a record of all trust assets to ensure nothing is overlooked when the trust is terminated.

• Document how trust assets are secured and maintained.

• Record all financial transactions and expenses.

Insurance Coverage

• Contact your property and casualty insurance agent to ensure your coverage is provided for your new trust, which owns the assets you transferred.

• Add your trust as an additional insured to your homeowner’s or vehicle insurance policies to provide coverage to the trust in the event of a claim.

• There should be no change in the premium for doing this.

Step 3: Acquire Assets in the Name of Your Trust

• Acquire new assets in the name of your trust after forming your revocable living trust.

• Ensure future purchases, such as a home or other investment property, are owned by the trust.

• If you own assets in your name when you pass away, your loved ones will need to go through probate to transfer those assets.

Get Started Today

Probate can be costly, time-consuming, and inconvenient for your survivors. Establishing a revocable living trust as part of your overall estate plan and transferring the title of your "probate assets" to your trust can make settling your estate easy and efficient. This way, the successor trustee you designate will be able to access, maintain, and distribute your trust assets without delay to your trust beneficiaries.

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