Probate and How to Avoid It

Many clients come to me wanting, among other things, to "avoid probate"--that is, to avoid having assets in their estate administered in the probate court.  There are several reasons why you might want to do this:

• Privacy is the biggest reason: anything that gets filed in probate court, including an inventory or account showing the value of assets, is part of the public record and accessible to everyone.
• In Ohio, where I practice, assets in a probate estate are subject to the claims of creditors of the deceased, while most non-probate assets are not.  This is not true in some other states.
• Probate administration is a slow-moving process, and keeping assets out of probate often permits them to be distributed faster.  This is not necessarily true in large estates, where the preparation, filing, and possible auditing of the federal estate tax return is usually the most important factor determining the speed of distribution.

So how do you tell if something is going to go through probate, or avoid probate?  If an asset is in your name individually and does not pass to someone other than your estate at death by contract or operation of law, it’s a probate asset.  If any asset you don't own directly passes to your estate at death, it’s a probate asset.  Anything else is not a probate asset.  For example:

• Things you've given away before you die are not probate assets because, well duh!, you no longer own them at death.
• Property in a revocable trust is owned by the trustee, and not by you individually.  Even if you are serving as your own trustee, you hold the trust property in a fiduciary, not individual, capacity.  So long as the trust document tells us what to do with the property when you die, the trust will not be a probate asset.
• What you have saved in a retirement plan account or IRA is technically owned by the plan trustee or IRA custodian in trust for your benefit.  Like the revocable trust corpus, it will not be a probate asset so long as you've named a beneficiary.
• If you have insurance on your life, it doesn't matter whether you own the policy or someone else does--so long as you've designated a death beneficiary, the proceeds will not go through probate.
• Real estate held in a joint & survivor or survivorship tenancy, or for which you've designated a transfer-on-death beneficiary, does not go through probate because title passes by operation of law at your death.
• Securities or bank accounts titled “joint & survivor” or which have transfer-on-death beneficiary designations, do not go through probate either, though in this instance it's because title passes by contract (the account agreement with whatever institution you're dealing with) rather than operation of law.
• Property interests which terminate at death do not become part of the probate estate because the property no longer exists.  Examples of this would be an old-style pension that pays you an annuity for life, but has no death benefit.