There are ways to avoid probate and some property situations that are not required to adhere to specific probate regulations. These are typically associated with different taxes and rules though. Certain accounts such as life insurance, 401K, and investments are not regulated with estate probate issues.
Living Trusts are one of the most widely used and advantageous way to avoid probate.
All types of assets can be transferred to a trust including bank accounts, real estate, stocks, mutual fund shares, cars, jewelry, and business or farm interests. Living Trusts help accomplish the following:
- Maintain full control of your assets and manage your investments during your lifetime;
- Provide for management of your assets should you become incapacitated or not wish to manage them;
- Provide for the management of trust investments at your death if beneficiaries are minors or are inexperienced;
- Arrange for your spouse to receive income for life;
- Arrange for trust principal to be distributed to your children at the death of your spouse;
- Specify the circumstances under which distributions are to be made, when and in what amount; and
- You can change the terms of your trust or revoke it entirely if at any time your financial circumstances or family relationships change
- All assets in a valid living trust are beyond the reach of the probate system.
- A living trust is revocable and you have complete control over its assets during your lifetime.
There are no adverse tax consequences to transferring property into a living trust as you can always add, subtract, and modify any assets held in your trust as well as change the beneficiaries or the amounts they receive.
As the Trustee, you are deemed responsible for managing the estate property and seeing that all the terms of the trust are carried out – much like the way you currently manage your property.
Joint ownership in property can be an excellent way to avoid probate. Property held in joint tenancy will avoid probate in most cases, but there are some distinct disadvantages in using joint ownership of assets.
- Loss of Control. Once the property is also in the name of someone else, you will need their approval to sell or manage the property. If the joint person becomes unable to make that decision, the courts must decide on further action. This is typically not an issue when it comes to spouses unless there is a divorce in the future.
- Risk of Lawsuits. As with anything you place in another person’s name, there is a risk of having lawsuits should something occur.
- Creditors Rights. Because your name is attached to real property, if the joint owner falls on hard times, your property will also take the hit for this situation.
- Gift Tax Consequences. Placing a child or loved one’s name on your property as a joint owner is the equivalent of making a gift. If the value of the property gifted is over $11,000, there will likely be gift taxed incurred. Gift taxes range from 37% to 55% and if overlooked can result in stiff penalties and interest.
- Must consult your attorney for all legal advice.
When estate planning is done properly, there is no need for probate. However, the fact is that many people never quite get around to doing their estate planning before something happens. If you may be facing this issue now or in the future, please send me some details so I can assist you to sort out the present and future issues. Deepak@HousesInSoCal.com