As many people are aware, probate is a public process that can be time consuming and expensive. So it’s not surprising that a common goal of estate planning is to avoid, or at least simplify, the process. To that end, here are a few ways to remove assets from the probate process altogether.
Wills control assets in your name alone
Wills only control assets you own outright at the time of your death, assets that are titled in your name alone. As a result, certain property is not included in your probate estate. Those assets pass automatically, by operation of law, to selected beneficiaries. Assets that fall into this category are things like joint bank accounts, joint ownership interests in real property, and accounts with designated beneficiaries, such as IRAs, 401(k) accounts and life insurance policies. This is true whether or not a will exists.
Assets with named beneficiaries pass directly to the beneficiaries
For example, if your father passed away, and among his assets was an insurance policy, the proceeds of that policy would be paid directly to the named beneficiary or beneficiaries on the policy. While the value of the policy is included in the total value of the estate for estate tax purposes, the distribution of those funds will be controlled by the policy, not by the will or by the laws of intestate succession (if there is no will).
Joint bank accounts are not included in a probate estate
Joint bank accounts are another good example of assets not typically included in a probate estate. Married couples, for instance, commonly open bank accounts in both their names for the purpose of paying household bills and saving for family vacations and other shared expenses. The legal effect of this is that when two or more people are listed as joint owners on a bank account with rights of survivorship, when a joint owner dies, the account passes automatically to the surviving owner(s) – as such, the account is not included in the deceased’s estate.
I should add that this result can be avoided if contrary intentions are made clear in your will. If the reason for listing more than one person’s name on an account is to make it easier to pay bills if someone should fall ill, then that should be spelled out in your will. Essentially, you can include language to the effect that any joint accounts are for convenience only. By including this clause, those accounts would then be treated like any other property, would be part of the estate, and those assets would be distributed according to the terms of your will.
Joint interests in real property transfer ownership automatically
Whether any real estate you own will affect your estate is going to depend on how the property is titled.
If only your name is listed on the deed to your house, then the house should pass to your heirs according to either your will or the laws of intestate succession.
However, if you own your home with someone else, as joint tenants with right of survivorship, then ownership will pass automatically to the surviving joint tenant(s) when you pass away. No probate is required for ownership to pass to the surviving joint owner or owners.
Similar to ownership as joint tenants is ownership as tenants by the entirety. This particular ownership option is only available to married persons, but its effect is the same as in joint tenants. When a husband and wife own property in the form of a tenancy by the entirety, ownership automatically passes to the survivor upon the death of the first spouse, without the need for probate.
These are just a few of the myriad of ways you can structure your assets if the goal is to minimize your probate exposure. As always, consult with a qualified estate planning attorney for guidance when considering how to best achieve your goals.