Probate

In a previous article we described the probate process and how it works. In that article we touched briefly on using a trust to avoid probate. If a piece of property, usually real estate, is owned in the name of a trust, that property is distributed as directed in the trust. If the decedent is the trustee and beneficiary of the trust, a properly drafted document will also name a substitute or successor trustee. That person has legal authority to act for the trust and can immediately step in upon his predecessor’s death and deal with trust assets. The named successor does not need authority from a probate court to do so, therefore, no probate filing is necessary. This saves considerable time and money and is probably the safest way to avoid probate.

In a living, revocable trust, the creator of the trust retains full control over the assets placed in the trust and can change or revoke it at any time. One word of caution, if you have plans to re-finance your house, do so before putting it into trust. Most banks will not refinance a house if title is in the name of a trust. They will make you put title in your name individually, then, after the re-finance is done, you will have to put title back in the name of the trust.

But there are other ways to avoid probate as well. Simply giving assets away will work. Once an asset is put in someone else’s name, it need not have to go through probate. This is the riskiest approach. The donor of the “gift” loses all control of the asset and will very likely never see it again if it is ever needed. This approach should be considered only if the donor is certain enough assets are retained to cover the donor’s needs.

Adding one or more people to the ownership as a joint owner will allow the property to pass to a surviving joint owner without going through probate. This approach can be risky as well. It is most frequently done in the context of real estate. However, once a person’s name is on a deed, the only way to get it off is to have that person sign a deed transferring the title to someone else. The original owner will not be able to sell or refinance the property without obtaining the joint owner’s signature.

One of the most frequent requests we get is to add children’s names to the parent’s deed. This will allow the children to get the house without going through probate upon their parent’s demise. However, the risks are serious. Three scenarios illustrate the risk: 1) If the child, or children, have financial difficulties, the house could be attached by that child’s creditors; 2) If the child experiences domestic problems, the house could be involved in an asset division by a probate court; 3) If the child predeceases the parents and the deed is not written properly, the house could become part of the deceased child’s estate and that share of the ownership would go to that child’s heirs. There may be some capital gain tax implications in doing this as well.