It’s Not Just About Avoiding Probate

An important part of an initial consultation with a potential new client is finding out what their goals are in coming to see us. Invariably the response will include among other things, avoiding probate. This is an important goal. Probate is the court proceeding used to inventory and account for the assets and liabilities of a deceased person, liquidate assets where appropriate, pay liabilities, and distribute the balance to the heirs or beneficiaries of the deceased person. Probates can happen when a person dies either with or without a will.

Probate means you are involving the court system.  You are putting decisions about the accounting and disposition of your assets in the hands of a third-party, the judge, who may take things down a very different path than you intended. In some states probate is by definition a very costly and very time-consuming proposition. In others states it is much less so. But it is invariably more costly and more time-consuming than it would be if you did not need to involve the court system.

Often people are at least somewhat aware that a trust is the answer to avoiding probate. But it is definitely not the only way. In most states probate can be avoided by certain titling decisions or by using beneficiary designations. You can title real estate and other assets as joint tenants with rights of survivorship. You can put beneficiary designations on accounts, indicating who should own the asset at your passing. In some states you can even put beneficiary designations on real estate. This can all lead to avoiding probate. It is all relatively simple and often less expensive than setting up a trust.

But here’s the thing, a good estate plan is not just about avoiding probate. It’s about making sure all of your goals are met, including avoiding probate. You could put your children on your real estate and accounts as joint tenants. This will avoid probate, but it could also mean you lose the asset if they go through a divorce or have some other financial troubles. If you choose to put less than all of your children on a title, will those children who receive the asset be willing and able to share with the other children? You could have all of your bank and investment accounts go to designated beneficiaries, but then who pays your final bills? Will all of the children be willing and able to equally pay money back to your creditors? You could have your home go straight to your children with a beneficiary designation, but then who decides what happens from there? Is it sold? Does it become a rental? Do they end up in court anyway fighting over what happens next? What about minors or individuals with disabilities? Are their interests being protected if assets just come to them directly?

Planning with beneficiary designations can be an important part of an estate plan and works very well for some assets, but not so well for others. If planning is done using solely beneficiary designations it can lead to confusion because there is no central place where assets are held, debts are paid, and distributions are made according to your wishes. With only beneficiary designations, everyone, so by definition no one, is in charge.  While avoiding probate is an important goal, and the use of titling and beneficiary designations appear to be a simple path to get there, it may leave your family vulnerable to even more costly and complicated consequences down the road.

Good estate planning is not just about avoiding probate. A good estate plan is about having a plan that makes sure you get your assets to who you want, in the way you want, with the least amount of administrative cost and hassle possible. That usually means more than just planning with beneficiary designations. 

This post is for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Nothing herein creates an attorney-client relationship between Hallock & Hallock and the reader.