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How to Avoid Probate

By Origin


May 7, 2024

Probate is the court-supervised process that takes place when someone dies owning assets in their name. Probate is necessary even if you have a last will and testament. Because probate can be expensive and timely, many people use a revocable living trust approach to not burden their survivors with the hassles, time, and expense of a probate process. This article addresses the steps you can take to avoid probate.

Step 1: Create a Living Trust Entity

The first step to avoiding probate is to set up a revocable living trust. By creating a living trust and having your assets titled in the name of the trust, you have set up a legal instrument that allows a defined trustee to manage those assets. Once setup, you will be the initial trustee and define a successor trustee who, upon your incapacity or death, takes over as the primary trustee. The primary trustee can take immediate actions to secure, maintain, sell (if necessary) and distribute assets without involvement from a probate court. When you set up your trust, you will make designations that include:

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

  • Who will be in charge of settling your trust when you pass away; and

  • What 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 to generate.

Step 2: Transfer assets from your name to your trust

Now that your revocable trust has been established, it is imperative that it be 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, and individually held stocks and bonds. If you do not transfer these assets to your trust, a probate may be necessary to transfer these assets to your heirs after your death. The following are instructions for transferring various assets. Investigate whether your state or county/parish charges a transfer fee or tax for retitling your assets. Generally, this is not expensive and there are many online providers that can make this easy. Note: your Pour-Over Last Will & Testament that you signed with your Living Trust, will cover the transfer of your assets through Probate to your Living Trust as a last resort if you have not finished the retitling or transfers so your estate plan is valid and your assets will go where you have determined.

Ensure the trust is funded properly‍

If you do not transfer these assets to your trust, a probate will be necessary to transfer these assets to your heirs after your death. It is important that all of your titled assets are transferred to the trust as soon as possible. It is also important that any new property or titled assets be acquired in the name of the trust to avoid having to transfer them at a later date. Some assets can have beneficiaries named under Transfer On Death (TOD) or Payment On Death (POD) to avoid probate. Assets that can be transferred to or re-titled in the name of the trust include:

  • Real estate

  • Bank accounts

  • Savings bonds

  • Certificates of Deposit (CDs)

  • Investment/brokerage accounts

  • Individually held stocks and bonds

  • Titled motor vehicles, watercraft, airplanes, etc. You may choose to re-title these assets, but this is not always done as they tend to be bought and sold more frequently.

While most people name a spouse or child as the beneficiary of such accounts, you may choose to name your trust as the beneficiary. This will route distributions from these accounts for the benefit of minors or other beneficiaries to be managed with trust rules avoiding a lump sum distribution.

Do not immediately re-title your IRAs, 401(k)s, insurance policies, and annuities. You should review who you have named as the beneficiaries. Upon your death, these accounts are paid directly to the beneficiaries and mostly avoid flowing through probate. Some people name their trust as the beneficiary to manage the distribution rules around lump sums and where the inheritance goes if the beneficiary passes away before you however there are certain rules that need to be followed to avoid tax deferral impacts, so consult a tax professional before making this change.

Communicate with successor trustees

Make sure that all listed successor trustees are aware of the possibility of being called upon to serve as trustee and that they know where to find a copy of the trust in the event they are called upon to serve as trustee. Some online platforms provide a dashboard to notify your trustee which will provide them 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. All financial transactions and expenses should be recorded.

Insurance Coverage

Contact your property and casualty insurance agent to ensure that your coverage provides for your new trust owning the assets you transferred. You may want to 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

As you acquire assets after you form your revocable living trust, acquire them in the name of your trust. For example, if you purchase a home or other investment property in the future, make sure that it is owned by the trust. If you own assets in your name when you pass away, your loved ones will be required to go through the probate process to have those assets transferred out of your name. You may sell assets at any time from the Trust.

Get started today

Probate can be costly, time-consuming, and inconvenient to your survivors. If you want to make the settling of your estate easy and efficient, consider establishing a revocable living trust as part of your overall estate plan, and transfer the title of your “probate assets” to your trust. This way, the successor trustee of your trust that you designate will be able to access and maintain your trust assets when you pass away and distribute them without delay to your trust beneficiaries.