You may have heard that probate is somehow bad and that you should avoid it, but you aren’t sure why or how to avoid it. This article provides an overview of probate, the reasons many people want to avoid it, and ways to avoid probate.
Probate is the legal process of validating a will and court oversight of distribution of assets titled in your name. Probate is also necessary if the decedent didn’t have a will. Distribution of assets without a valid will is pursuant to the default “will” written by the State of Utah known as intestate succession.
The three primary characteristics of probate are (1) it is costly, (2) it takes time for the assets to be distributed, (3) and the proceedings are public record. Because of these characteristics, many people wish to avoid probate, which can be accomplished with careful planning.
In estate planning everything comes down to title. If your assets are titled in your individual name, the asset will be probated. Individual ownership is any ownership where there is no co-owner or the co-owner does not have rights of survivorship.
There are two alternative ownership types to individual ownership: (1) joint; and (2) contract.
When we speak of joint ownership, we technically mean Joint Tenancy with Rights of Survivorship (“JTWROS”). JTWROS for the purposes of estate planning simply means that when one co-owner of the asset dies the decedent’s ownership interest passes to the surviving owner(s) by operation of law. Utah’s default ownership title for married couples is JTWRO, so chances are (if you are married) many of your assets are held in JTWROS such as your home and bank accounts. When the first spouse dies under JTWROS, the surviving spouse automatically owns the property individually (assuming only the two spouses owned the property) without any legal proceeding. Because JTWROS property is passed by operation of law, some advisors suggest JTWROS as a probate-avoidance strategy.
Does JTWROS actually avoid probate? No, not really. It only delays it. When the surviving spouse dies in our example above, the property will then be probated because at her death she owned the property individually. As a result, JTWROS avoided probate at the first death, but not the second. JTWROS also has other asset protection and potential gift tax issues that are outside the scope of this article.
Contract is third type of asset ownership. Examples of contract ownership are life insurance policies, qualified retirement accounts, and assets owned in trust. Contract ownership, specifically assets held in a revocable living trust (“RLT”) is the best method to avoid probate because all assets held or funded to the trust will be distributed privately pursuant to the terms of the trust, avoiding probate and its attendant costs, delays, and publicity. Remember, for a RLT to effectively avoid probate, the assets must be appropriately titled.
For more information on estate planning contact Russell B. Weekes at (801) 285-6866.