What is Probate:
Probate is the legal process to determine who should receive a person's property and assets at death. It is the only way to legally change the title of property when the owner has passed away. Probate operates according to state law and can be a complicated and expensive process. The AARP estimates that the average probate cost is 3-10% of a person's estate and lasts about nine months to two years.
Not all assets a person owns are subject to probate. The following assets are not subject to probate as long as the named beneficiary is alive, over the age of eighteen (18) and competent: bank accounts, brokerage accounts, life insurance policies and retirement accounts (Pensions, 401(k), IRA (Individual Retirement Accounts), Annuities, etc.). However, many assets such as real property, stocks, and accounts with improper or incomplete beneficiary designations may be subject to probate.
Can I avoid Probate:
Yes. A properly created and funded Trust can avoid the probate process entirely. But remember, any assets left out of the trust (not properly funded) may be subject to the probate process.
Does a Will avoid Probate:
No. Remember, the Will takes effect after death. And after death, you can obviously no longer sign your name. This creates a major problem in that there is no way to transfer your assets to your beneficiaries without court involvement. The courts involvement in the distribution of your estate after your death is called Probate.
Example of Probate with a Will:
Bill and Sue Jones have just created a Will, and are feeling great because they "think" they have their estate planning in order. Let's say that Bill and Sue are mortgaging their home, and they are both listed on the title of the property as "Joint Tenants with Full Rights of Survivorship". Joint Tenancy means that while Bill and Sue are alive, they are equal owners of the property. When either Bill or Sue pass away, the "surviving spouse" would immediately have full ownership of the property. No probate would be required in this situation. But upon the death of both Bill and Sue, probate would be required to transfer the title because neither of them are alive to physically sign the deed over to the executor of the Will.
Does a Trust avoid Probate:
Yes (as long as it’s properly funded). Remember, a Trust takes effect while you're alive. This gives you the ability to transfer your assets into the Living Trust while you can still sign your name. By transferring your assets while you are alive, you can avoid Probate.
Example of Avoiding Probate with a Trust:
Bill and Sue Jones have just created a Trust. Let's say that Bill and Sue are mortgaging their home, and they are both listed on the title of the property as "Joint Tenants with Full Rights of Survivorship". Because the Living Trust is a "Living" entity, it can own property and assets. Knowing this, Bill and Sue will record a Deed at the County Recorder's Office for their real property. This Deed will transfer the ownership from "Bill and Sue Jones as Joint Tenants" to "Bill and Sue Jones, as Trustees or Successor Trustees of The Bill and Sue Jones Family Trust". When either Bill or Sue pass away, the "surviving spouse" continues to act as Trustee of the Living Trust...nothing changes. When both Bill and Sue pass away, the Successor Trustee (that they have chosen) can immediately act on their behalf to sell the property and distribute their assets. Probate is entirely avoided because all the assets were transferred into the Living Trust while Bill and Sue were alive.