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A Better Partnership


Oct 2011
October 31, 2011

Non-Probate Transfers: Good Intentions, Unintended Results?

Probate can be a real hassle – it is expensive, time-consuming and public. However, probate proceedings are not required for every estate and, when possible, successfully avoiding probate can save money, minimize administrative burdens, avoid delay and protect the privacy of your estate and your family.

The key to avoiding probate is ensuring that, at your death, no assets are titled in your name alone which do not pass by beneficiary designation. There are three basic forms of non-probate transfers: (1) revocable trusts, (2) joint ownership and (3) beneficiary designations. You should carefully consider the advantages and disadvantages of each before pursuing any of these transfers – specifically, be aware that, although your intentions were good in trying to avoid probate, the action (or inaction) of you or your family members can nonetheless lead to unintended and undesirable results.

Oftentimes, an individual seeks to avoid the pitfalls of probate by creating a revocable trust and re-titling assets in the trust’s name. This method is an especially popular choice due to the degree of control and flexibility you retain over the trust and its assets. While you are able, you may serve as trustee and continue to control the assets as though you own them outright. You have access to use trust assets for your own benefit or for the benefit of your loved ones. Once you become incapacitated or pass away, the successor trustee is bound by a duty to continue to manage the assets for your benefit and according to your desires. However, for your trust to be an effective probate avoidance tool, it is critical that you perform the necessary exercises to have each of your assets re-titled in the name of or payable to the trust.

While a revocable trust is an attractive option for avoiding probate, the creation and maintenance of such a trust does not make sense for everyone. Revocable trusts may be more expensive to draft and administer, and may provide no tax savings to those individuals who will not otherwise face an estate tax liability at death.

Another means by which to avoid probate is to title property in joint ownership. When you name another as joint owner with rights of survivorship, you grant that joint owner equal access to the asset during your lifetime and guarantee that the asset will pass automatically to the joint owner at your death. While this method has the benefit of removing the asset from your probate estate, you have given up a considerable amount of control. Suppose, for example, that you name your child as joint owner with rights of survivorship of your checking account, perhaps to assist you with paying bills. You instruct the child to split the balance of the account equally with his or her siblings upon your death. Though you believe he or she will adhere to your requests, our children often have plans that differ from our own. As a joint owner, your child has the right to completely ignore your request and keep the money.

A further method to avoid probate is to transfer property at your death by beneficiary designations. Disposing of assets by beneficiary designation automatically passes title to the designated beneficiary at your death. Beneficiary designations are advantageous because you retain control (you may change beneficiaries whenever you wish) and your child lacks access to the asset during your lifetime. Unfortunately, beneficiary designations are only available for a limited category of assets, including retirement plans, life insurance and certain bank and brokerage accounts. You must take care to ensure that your estate is not depleted by the use of beneficiary designations; there will be expenses that need to be paid upon your death and some funds should be available for this purpose.

It is also important to remember that the transfer of assets which pass by joint ownership or beneficiary designation are not subject to the terms of your will or trust.

On a steadily increasing basis, individuals are pursuing ways to transfer their property to loved ones without exposing their estates to probate. Though the advantages of probate avoidance are significant, the consequences of poor execution are equally significant – particularly when family feuds or insolvent estates result. Please contact your estate planning attorney at Warner Norcross if you would like to explore these options further.

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