Monday, October 27, 2008

How to Avoid Probate?

Probate is a complex procedure which requires lots of time, effort, and worst of all, is very expensive. Because of the expense, time, and hassle involved, it should be avoided if possible.

One simple way to avoid probate is to set up a living trust. Assets in a living trust do not have to be probated. This makes living trusts the perfect vehicle for avoiding the cost and hassle of probate.

Another way to avoid probate is to title assets in joint tenancy. Assets titled as joint tenancy avoid probate because when one owner of joint tenancy property dies, his or her interest in the property automatically vests in the surviving owner(s). So, if two people own property as joint tenants, if one of them dies, the other automatically becomes the sole owner (without having to go through probate). There are some drawbacks to owning property in joint tenancy, so please contact us if you are considering titling an asset in joint tenancy. (For example, the property will not avoid probate on the death of the surviving joint tenant; in addition, there are tax basis consequences to owning property in joint tenancy, which can have a negative tax impact on the surviving joint tenant.)

The same holds true for California property titled as community property with right of survivorship. The surviving spouse will automatically become the sole owner of the property upon the death of the first spouse.

One easy way to avoid probate for bank accounts is to hold them as "payable on death" (P.O.D.) accounts. These accounts have the benefit of being paid automatically on death to a named beneficiary. These accounts can be set up through your local bank. One common question we get regarding P.O.D accounts is whether the named beneficiary has any right to funds in the account prior to the death of the primary account holder. The answer to this is no. The beneficiary has no right to the funds prior to the death of the primary account holder, and the beneficiary can be changed or eliminated by the primary account holder prior to death.

Another way to avoid probate through beneficiary designation involves retirement accounts and pension plans. Retirement accounts such as IRAs or 401(k) accounts go directly to a named beneficiary or beneficiaries at death. This will avoid the necessity of going through probate, as the beneficiary can simply claim the plan benefits from the account custodian.

Two other ways to avoid probate in California are: 1) for estates which have less than $100,000 in probate assets, and 2) for estates where a spousal property petition can be utilized. Smaller estates, which have less than $100,000 in probate assets (the estate can be much larger than $100,000, but the probate assets must not exceed $100,000) can go through a summary procedure where affidavits are utilized to transfer assets.

For estates where a spouse, or registered domestic partner, is to receive assets outright, a spousal property petition can be used to transfer assets. When using this procedure, there is no limit as to the amount of assets which can be transferred. The assets to be transferred must pass by either will or intestate succession (where there is no will, but California laws mandate that the assets are to be transferred to the spouse or domestic partner). Additionally, part of an estate can be transferred utilizing a spousal property petition even if other assets must still be probated.

In sum, there are numerous ways to avoid probate under California law. Please contact us if you have any questions regarding California probate law or ways to avoid probate in California.

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