TO PROBATE, OR NOT TO PROBATE?
I was given terrible advice early in my career. I’m glad I didn’t take it.
The attorney said, “Hey Jordan, probating a will isn’t bad. It only takes like 3 months”. I asked, “What if there’s a home they want to sell right away?” “No problem” they replied. “They just sign the contract and by the time the closing’s scheduled they’ll have all the court papers they need”.
But this poor advisor left out many crucial details, including how creditors have 7 months from the date the court issues the papers to file a claim or judgment against the estate. Also, they were wildly off on the estimated time it might take, because depending on a variety of scenarios there can be significant delays in getting the papers.
All of this begs the question, can you avoid probate? The answer is yes, and I strongly recommend it.
If you own one or more of the following; a home, vehicle, family keepsake, financial account (401k, 403b, Annuity, Pension, etc.), how should they be held while your living (who or what should own them) and how should they be passed to your family when you die.
You’ve got options. There’s (1) a trust, (2) a life estate deed, (3) naming beneficiaries on any financial account that will allow it, and (4) giving your belongings away before death. Your strategy depends on your goals and the type of asset you’re seeking to transfer.
Vehicles
Currently in NY if someone passes away and title to a vehicle, boat, motorcycle, ATV, trailer, etc. worth under $30,000.00, the DMV allows the surviving family to transfer to themselves without probating a will in court. This is pretty easy and straight-forward, and you need only fill out a basic form and provide some papers to DMV. With that said, if you have someone specific in mind who you’d like your vehicle to go to, I recommend signing the title over to them before passing to make sure they receive it. If you don’t, then do not count on it getting to them as is unfortunately the case sometimes with family keepsakes that may have more intrinsic value and cannot simply be replaced.
Family Keepsakes
Jewelry, art or your grandfather’s watch, a family keepsake can come in many forms. Give these to the people before you pass away to ensure they receive it. This avoids probate but will also prevent them from winding up in the wrong hands, such as where a family member comes to your home and takes the item before the intended beneficiary arrives.
Financial Accounts
Naming beneficiaries on an account can avoid probate, but if they predecease you and you don’t name successors, it will then go through their estate (probably all to their spouse) and the court.
People typically name their spouse first and then children as successors equally. This is highly recommended. Some people name a trust instead to ensure that if a beneficiary predeceases you, their share goes to where you would have wanted it to go, rather than that beneficiary’s estate, which would likely be their spouse.
Real Estate
Outright Transfers Before Death - I never recommend putting a child on your deed before you pass away for many reasons. It’ll create a huge tax burden for them when they sell versus if they receive it post-death, where they’d get a step-up in cost basis and pay no taxes. It would also invite creditors of your child to file a judgment against the property once they own it. You may lose real estate tax exemptions the child isn’t eligible for. Also, whoever you put on your deed can transfer their interest to someone else without you knowing.
Life Estate Deeds – These are kind of like naming a beneficiary on your deed, except they’re called remainder persons (not beneficiaries), and can transfer their interest to someone else before your death and without your permission (unlike beneficiaries on a bank account who can’t transfer their interest). You can live there your entire life and never be forced to move. You keep all real estate tax exemptions (same as trusts below). But if you want to sell your home before you pass away, you must take it out of the life estate deed and transfer the property back in your name, otherwise you’ll get killed on taxes (like 50%) at the time of sale. But if you don’t sell before death, life estate deeds are an excellent tool to pass real estate to your beneficiaries without them having to go to the probate court, while also avoid any possible will contest.
Trusts - These are best in my view. You keep all your real estate tax exemptions and no one can change your beneficiaries except for you. When you pass away, your trustee handles everything, doesn’t need to probate your estate, and keeps everything private. Depending on the type of trust you can sell before your death without any tax consequence (unlike the life estate deed) and completely protect your assets from the government and creditors.
Trusts are kind of like corporations and LLCs, but you don’t have to pay Albany a fee and get their permission to create one. As a result, they’re very private. In fact, depending on the type, completely private. So whoever you want in the complete dark about your finances; the government, creditors, family members, etc,, then trusts may be for you.
Conclusion
Proper estate planning requires a thorough and continued analysis of one’s assets, estate and goals. Many different scenarios apply to different clients, which is why I always recommend they speak to knowledgeable attorneys, financial advisors and accountants, as well as conduct their own research to become best educated on this topic.