Supervision of Estate Administration
Most people use a last will to record their final wishes. If you do this, your property is going to become probate property immediately after you die. It is not transferred to your heirs right away.
Why is this? For one thing, the validity of the will must be determined by the probate court. Interested parties may want to challenge the validity of the will, and this is one reason why probate exists.
In addition, even if the will is valid, there can be outstanding business. Many people die while being in debt to one extent or another. During probate, creditors must be notified so that final debts can be paid. This would include tax responsibilities.
Who does all this work? That would be the executor of the estate. You choose your executor when you are drawing up your last will. If you don’t nominate an executor in your will, the probate court will appoint a personal representative to handle the estate administration tasks.
Probate can be time-consuming, and there are costs that accumulate during the probate process. You may envision a more smooth and direct transfer of assets to your loved ones after you die. This would lead to a question: Is it possible to avoid probate?
Avoiding the Probate Process
Probate is a factor when you retain sole personal possession of your property up until the time of your death. There are ways to arrange for asset transfers outside of probate if you are proactive.
One very effective and popular way to avoid probate would be through the creation of a revocable living trust.
Some people are reluctant to create a trust, because they don’t want to surrender control of the assets right away. They aren’t sure if they are going to need some of these resources along the way.
Revocable living trusts are appealing on this level, because you still retain control the assets that you convey into this type of trust.
The creation of a trust is going to involve the selection of a trustee and a beneficiary. The trustee administers the trust. The beneficiary receives monetary distributions from the trust.
The person creating the trust is called the grantor or settlor. You as the grantor can act as the beneficiary and the trustee initially. As a result, you retain complete control of the assets that comprise the trust.
When you are drawing up the trust agreement, you name a successor trustee and a successor beneficiary to assume these roles after you die.
After you do in fact pass away, the trustee that you choose to succeed you is empowered to distribute assets to the heirs that you have named as beneficiaries. These distributions would not be subject to the probate process.
Another nice thing about a revocable living trust is the fact that you can account for the possibility of incapacity.
You may be surprised to hear that somewhere in the vicinity of 45 percent of people who are at least 85 are suffering from Alzheimer’s disease. According to statistics that you can find on the Alzheimer’s Association website, one out of every eight individuals who is at least 65 is suffering from this disease.
Among other things, Alzheimer’s causes dementia. If you are suffering from Alzheimer’s induced dementia, you are probably not going to be able to act competently as the trustee of your revocable living trust.
When you name a successor trustee, this individual or entity could step in to manage the trust in the event of your incapacitation. Because of this proactive step, you would be preventing a guardianship proceeding.
The creation of a revocable living trust is not your only option if you want to position your assets in a way that will facilitate a probate free transfer after you die.
Some of the probate avoidance notions that are out there come with various pitfalls, so you should tread lightly. They may enable probate avoidance, but they can invite negative consequences that you may not have considered in advance.
One of these is the idea that you could simply add someone to the title of your property. This condition is called joint tenancy with right of survivorship.
For example, you could add someone to the title of your home. This person would be the co-owner right away. When you die, the joint tenant would be the sole owner of the home. Probate wouldn’t be a factor.
There are multiple potential difficulties that can come about if you go this route. One of them is the fact that the joint tenant’s financial problems become your problems.
Judgments against the joint tenant could lead to attachment of the property that was once yours. You have to remember, half of it now belongs to the joint tenant. This scenario could come into play during divorce actions as well.
Schedule a Consultation
If you would like to discuss probate avoidance strategies with a licensed estate planning attorney, send us a message through our contact page or call us at (317) 684-1100 to schedule a consultation.
Mr. Kraft assists clients primarily in the areas of estate planning and administration, Medicaid planning, federal and state taxation, real estate and corporate law, bringing the added perspective of an accounting background to his work.