Probate avoidance techniques — from basic steps to complicated planning

A family member dies and you were named executor in the decedent’s will. So you go to the decedent’s bank to take out funds to pay funeral costs and other expenses, bringing the original will and the decedent’s death certificate with you. But the bank sends you away, telling you that you need to “probate” the will.

Through probate, an executor named in a decedent’s will is officially appointed by the local Register of Wills, Probate or Surrogate Court to deal with the assets of the decedent and receives a certificate evidencing his or her appointment. The executor, only after being armed with the appointment papers, can access the bank account. It’s a process that adds additional expenses and delays, and can mean assets stay in the name of the decedent longer than desired.

Smart Business spoke with Wilbur D. (Bud) Dahlgren, an attorney at Semanoff Ormsby Greenberg & Torchia, LLC, about probate avoidance techniques, from very basic steps to more complicated planning options.

What are some of the more basic probate avoidance techniques?

For an asset to be subject to probate, the asset must be in the decedent’s name alone with no named beneficiary. So one straight forward way to avoid probate is to add a joint owner or name a beneficiary. A joint owner or named beneficiary can gain access without the need of an executor.

Just adding a joint owner or naming a beneficiary is easy enough, but there could be some unintended consequences if not coordinated with will provisions. That’s why it’s important to work with an attorney to properly draft a will that can carry the decedent’s wishes through probate in coordination with jointly owned or beneficiary designation assets.

How can the difficulties caused by relying solely on joint ownership or beneficiary designations be minimized?

The most popular device is a revocable living trust, commonly known as a ‘grantor trust.’

Trusts are created by a trust agreement between the person creating the trust, called the grantor, and the person running the trust, called the trustee. The persons who benefit from the trust assets are called the beneficiaries.

In the case of most grantor trusts, the grantor, trustee and beneficiary are all the same person. As such, the grantor remains in complete control and has the right to take out all or a portion of the trust assets and income arising from the trust assets. Moreover, the grantor can amend or revoke the trust at any time.

The grantor trust avoids probate in that, after the death of the grantor, the successor trustee distributes trust assets to the heirs without the necessity of court approval.

Once the trust agreement creating the grantor trust is signed, then the trust must be funded — that means assets need to be re-titled into the name of the trust. Assets left out of the trust could be subject to probate, thereby defeating the primary purpose for establishing the trust.

Assets that have designated beneficiaries or joint owners are not typically put in the trust. For example, IRAs and life insurance have designated beneficiaries and will pass outside of probate, so such assets are not transferred to the grantor trust.

Should everyone have a grantor trust to avoid probate?

No. For the estates of most decedents, probate will not be a major problem. But for people with more complicated estates, such as owning real estate in two states or multiple bank and investment accounts, the grantor trust is worth exploring.

It is important for you to provide complete financial information to your attorney so he or she can determine if a grantor trust is a viable option, and, if so, make sure that the trust works to avoid probate as intended. The bottom line is that if the trust is established and funded properly, the successor trustee can wrap up the distribution of the decedent’s assets without court involvement.

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