If you are here, you probably want to know how to avoid probate. Perhaps you have heard from your attorney or financial advisor that probate avoidance is important, but don’t understand what probate is or how to avoid it. Or maybe you have been told that an expensive living trust is your only option for avoiding probate. Or maybe you want to get a better understanding of how deeds are used to avoid probate of real estate.
I am an attorney that has been helping property owners avoid probate for over fifteen years. If you want to know how to avoid probate in your estate, this guide is for you. It will:
- Help you understand what probate really is;
- Give you the four primary reasons that people avoid probate;
- Explain the principle that underlies all probate avoidance techniques;
- Explain the difference between probate assets and nonprobate assets;
- Summarize the tools that you can use to avoid probate and give the pros and cons of each; and
- Tell you how to avoid probate without an expensive living trust by using deeds to transfer real estate at your death.
As you’ll see, probate is a pay-now-or-pay-later scenario. You can decide whether you want to take a few steps to avoid probate now, or leave it up to your loved ones to straighten it out in court after your death. If you want to save your loved ones the hassle and expense of probate, this guide will help you do that.
What is Probate?
Probate is a court-supervised process for transferring your assets to your heirs at death. The probate process can vary depending on several factors:
- Your Probate Assets – The probate assets that you own at your death often determine whether probate is required. More on that below.
- Whether You Have a Will – If you have probate assets, a legal proceeding will probably be required to transfer those assets, regardless of whether you have a will. But the process can differ depending on whether you die with a valid will (testate) or without a will (intestate).
- State Law – Different states have different laws. The probate process in your state may be more or less complicated than the probate process in another state. And if you own real estate in multiple states, you probably will need a court proceeding in each state.
- Your Heirs or Family Situation – Complex family dynamics can create complex probate proceedings. Probate can be more complicated if you are part of a blended family, have underage or disabled children, or have conflict among family members.
Based on these factors, probate can be a long process involving complicated legal issues. Because the process is complex and unfamiliar and involves fiduciary duties, many states require your loved ones to hire an attorney to help with the probate proceeding. Even in states without this requirement, the process is usually too complex for most people to handle on their own.
Four Reasons to Avoid Probate
People avoid probate for four primary reasons.
- Avoiding probate avoids expenses. Probate can be expensive, often costing thousands of dollars in legal fees and court costs. The larger and more complex the estate, the higher the legal fees.
- Avoiding probate avoids hassle. Depending on state law, the person who administers your estate (personal representative) may need to inventory your assets, file accountings with the court, notify (and possibly negotiate with) creditors, open estate bank accounts, and transfer assets to your heirs. These administrative requirements can be quite a burden on the friend or family member handling the estate.
- Avoiding probate avoids delay. Probate ties up your assets in court. Courts are reluctant to permit asset transfers until the estate is closed. At a minimum, your personal representative must make sure that all creditor claims are resolved before transferring assets out of the estate. This process could take several months. During this time, your heirs may not have access to the assets you leave to them.
- Avoiding probate avoids invasion of privacy. Probate proceedings are public record. Once the estate is open, anyone can go to the court and get a copy of your will and see what your assets are and to whom they will be distributed. If you are like most people, you would prefer to avoid this invasion of privacy.
These are all valid reasons for avoiding probate, but not all apply in every case. And, to be fair, probate avoidance can involve a small amount of hassle and expense. Still, most people find that the benefits of avoiding probate far outweigh the costs.
The Probate Avoidance Principle
So how do you avoid probate? There are several ways to avoid probate, but they all depend on a single principle:
You can avoid probate by arranging your assets so that everything you own either passes automatically to someone at your death or can be transferred without court involvement.
Each technique I discuss in this guide depends on this single principle. For example:
- Estate planning deeds like life estate deeds, lady bird deeds, and TOD deeds automatically transfer real estate to new owners at your death;
- Joint ownership with survivorship rights—including joint tenancies with right of survivorship, community property with right of survivorship, and tenancy by the entirety—automatically transfers property to existing owners at your death;
- Living trusts avoid probate by using lifetime transfers to fund the living trust, ensuring that you do not own the assets at your death; and
- Beneficiary designations automatically transfer your financial accounts and other assets to the designated beneficiaries at your death.
Each technique can convert probate assets (assets that require probate) into to nonprobate assets (assets that pass automatically without probate).
Real Estate as a Probate Asset
Assets can be grouped into various categories. Common examples include financial accounts, stocks and bonds, life insurance and annuities, retirement accounts, automobiles, personal belongings, and real estate.
With proper planning, it is relatively easy to transfer most categories of assets without probate. For example:
- A bank account can be titled jointly with right of survivorship so that is passes to a surviving owner on the death of an owner;
- A retirement account, brokerage account, or insurance policy can include a beneficiary designation that transfers the account to the designated beneficiary at death; and
- Many states allow automobiles to be transferred to family members using an affidavit procedure after the owner dies.
It is relatively easy to avoid probate for these types of assets. Historically, planning to avoid probate of real estate has been more difficult. Until recently, there were only three primary ways to avoid probate of real estate:
- Lifetime Transfer – Transferring property to another owner takes it out of your estate. There are two ways to structure lifetime transfers. First, you could transfer the entire property outright to a new owner. The obvious downside of transferring the entire property is that you are giving the property away and have no legal rights to it after the transfer. The second option, which is usually more palatable, is to add a new owner using a form of co-ownership that includes a right of survivorship. You can read more about rights of survivorship at Right of Survivorship Deeds.
- Traditional Life Estate Deed – A life estate deed allows you to continue to use the property during life, then transfers the property to others at your death. Life estate deeds achieve the goal of avoiding probate, but at a cost: Once you create a life estate deed, you can no longer sell, mortgage, or otherwise deal with the property without the consent of the remainder beneficiaries. As discussed below, this loss of control can be avoided using a lady bird deed or TOD deed. You can read more about life estate deeds at Life Estate Deeds.
- Living Trust – You can also avoid probate by creating a living trust, then deeding your property to the trust. When you die, the property is distributed under the terms of the trust without the need for probate. Living trusts are a good solution for some people, but they almost always require the assistance of an attorney to set up and fund correctly. Living trusts also require separate deeds to be filed after your death to transfer the property from the trust to your family members or other heirs. You can read more about living trusts at Living Trusts.
Because of the limitations of the three options described above, attorneys and state legislatures have looked for new deed forms that allow property owners to avoid probate without unnecessary expense and hassle and without sacrificing control. There are two types of deeds used to avoid probate without sacrificing control:
- Lady Bird Deed – A lady bird deed (also called an enhanced life estate deed) is a type of life estate deed that is recognized in a handful of states—including Texas, Michigan, and Florida. Like a traditional life estate deed, it avoids probate by transferring property automatically to remainder beneficiaries at your death. But unlike traditional life estate deeds, lady bird deeds include language that allows you to sell, mortgage, mortgage, or otherwise deal with the property without involving the remainder beneficiaries. You can read more about lady bird deeds at Lady Bird Deeds.
- Transfer-on-Death Deed (TOD Deed) – A TOD deed avoids probate by naming a beneficiary to inherit property at your death. During your life, you retain complete control over the property, including the right to revoke the TOD deed. You can read more about TOD deeds at Transfer-on-Death Deeds.
For property owners with simple estates, lady bird deeds and TOD deeds can achieve many of the same benefits of a living trust without the expense and hassle.
Relationship of Deeds to Will
Many people are confused about the relationship of their will to their deed. What if the deed says one thing and the will says another? Does a lady bird deed or TOD deed control? Or does the will control?
First, remember that having a will does not avoid probate. In fact, the opposite is true. The word probate is from the Latin word for prove. Probate proceedings are designed to prove the validity of the will and ensure that the will effectively transfers your assets. The purpose of probate avoidance deeds—life estate deeds, lady bird deeds, TOD deeds, and deeds with survivorship rights—is to remove property from your probate estate so that it is not necessary to probate your will to transfer the property.
How property is titled governs whether it is a probate asset. The whole purpose of probate avoidance deeds is to remove property from your probate estate. Once the property is removed from the probate estate, the will is no longer relevant. The property will pass to your family members or other heirs as described in the deed, without regard to what your will says. Stated differently, your deed trumps your will.