In this blog we’re going to be talking about estate planning, how to avoid probate, and make sure the right people get your “stuff” when you pass. Personal finance expert Suze Orman once said, “Estate planning is an important and everlasting gift that you can give to your family. Setting up a smooth inheritance isn’t as hard as you might think.” And author Napoleon Hill famously once said, “Don’t wait. The time will never be just right to do your planning.”
You’ll never see an armored vehicle following a hearse. You can’t take your money, real estate, or other property with you when you pass. There are basically two options here. You either plan ahead and make sure your assets are smoothly passed to the next generation, or you don’t plan at all and let the government decide for you.
How Are Your Assets Titled?
Your properties and assets may be titled in your name alone, or they may be held jointly. There are three basic ways to hold property with joint names: joint with rights of survivorship, tenancy in common, and tenancy by the entirety. Joint with rights of survivorship means when you die, your spouse gets the asset. Tenancy in common is used when properties are owned by business partners and you don’t want your business partner getting your portion of the property when you die. And tenancy by the entirety is used in Florida for a husband and wife owning property.
Depending upon how things are titled, you may be able to avoid probate. The title to everything you own matters a lot! During your lifetime, how you hold that title is very important. If you own it solely, you can control it and do whatever you want. But if you own it jointly with someone else, some of your control is diminished.
If you own it jointly with your spouse, you can’t sell that property without the consent of your spouse. If you own it tenancy in common, you can’t sell that property without your partner’s consent. This is why title matters so much and determines how much control you actually have.
If you pass and have assets in your sole name, you won’t be able to avoid probate. But regardless of how it’s titled, your heirs are going to have to take some kind of action when you pass. That may be as simple as filing a small estate affidavit or death certificate depending upon your state law. The big question here though is whether you are going to be able to avoid probate.
Probate will depend upon how things are titled. Are they titled in your sole name or jointly with someone? If you don’t have a will or an estate plan, your assets are going to pass in accordance with the intestacy laws of your state. This means the government is going to determine how your assets are passed to heirs.
Under the intestacy laws, you did absolutely nothing and didn’t plan. You don’t have a will, you didn’t title your assets jointly with anyone, and your heirs are now going to have to go into a court proceeding. We call that court proceeding an “administration” here in Georgia, but your state may call it something different. But since you passed “in testate” and didn’t have a plan, the government has a plan for you.
Under the intestacy laws, the disposition of your assets depends upon the state plan — not your plan. If you die in testate, do you think your spouse is going to get all your stuff? If so, you’re mistaken. If you don’t have a will, your spouse is not guaranteed to receive all your property and assets when you pass.
Let’s look at a situation where an individual has 2 children from a previous marriage. If that individual dies without a will, the new spouse will not get all the assets. The new spouse will get a child’s share, but no less than a third. This means that each of the children would get 1/3 of the assets and the new spouse would get the other 1/3. The result is that children now own property with their step-parent, which spells trouble.
If you have an estranged child and pass without a will, they would receive a share of your estate whether you wanted them to receive anything or not. That’s because you didn’t plan. If you have a child that has special needs or a disability, receiving assets upon your passing could disqualify them from receiving government benefits for their needs or disability. They’ll then have to spend their inheritance so they can reapply and re-qualify for those benefits. As you can see, dying without a plan can create lots of problems.
Administration vs. Probate
If you do indeed plan and avoid intestacy or an administration, we call that a probate. This means that you had enough foresight to get a will and make a plan for how your assets will be distributed upon your death. Everyone over the age of 18 should have a will. Even if you only have a vehicle and a bank account in your name, you should have a will.
A will won’t guarantee that you avoid probate. If the property is owned joint with rights of survivorship or tenancy by the entirely, you avoid probate. But if the property is owned tenancy in common, you would have to probate that property. Title means everything in this instance.
A properly written will names someone as the executor, personal representative, or fiduciary of your property. After you pass, that person will go to the probate court and let them know that you have passed. They then request to be appointed as the executor or personal representative that will gather all the assets and distribute them according to the will. That’s the probate process in a nut shell.
As a general rule, probates are faster than an administration. With an administration, we have to file a notice, get all the heirs to consent, and all that kind of stuff. In a probate as long as all the heirs have consent, you usually don’t have to put a notice in the newspaper to notify people of the administration. This makes the probate much faster and less expensive, and reiterates the importance of planning. But in a probate and an administration, you have to wait for a creditors period before distributing any assets. And if a creditor makes a claim, you have to make that claim is satisfied or that you have enough assets to satisfy that claim.
How to Avoid Probate with a Trust
Now that we’ve emphasized the importance of planning, let’s go one more step and talk about trusts. We mentioned earlier that assets held in your sole name would be subject to probate. But did you know that you can avoid probate altogether with a living trust, also known as a revocable trust?
If all your assets are titled in the name of a trust, you can avoid probate completely. It doesn’t matter how the assets are titled. All your real estate, bank accounts, stocks, bonds, personal property, etc. are in the trust and they’re not subject to probate. Just be sure not to put any IRAs, 401ks, annuities, or any other kind of qualified plan inside the trust. This will cause your heirs to have to pay a significant amount of taxes.
Think of a trust as a bucket. You can put anything you want in the bucket. And during your lifetime, you have 100% control over what goes into the bucket and what comes out the bucket. You can take money out the bucket for your expenses, and you can deposit money into the bucket. If you become disabled or pass, we put a lid on the bucket and it becomes irrevocable — meaning nobody can change it.
If you become disabled and are no longer able to manage your money, your successor trustee would step into your shoes and start administering the trust for your benefit. They would pay you and pay your bills using the trust. You could have language in the trust that says you don’t want to go into a nursing home. Maybe you’d rather spend all your assets on home care as opposed to going into a nursing home. You can define those wishes with a trust. The successor trustee can only use the trust assets for your benefit as long as you’re alive.
When you pass, the trust becomes irrevocable and can’t be changed. The trust will determine who gets your assets and how they get your assets. If you have a special needs child, you’d have a supplemental needs trust within the trust to ensure that their government benefits are not compromised. The trust prevents the government telling you how to distribute your assets.
The major benefit of a trust is that it will avoid probate. If you become disabled or pass, your successor trustee operates the trust and distributes the property much faster than it would be distributed with an administration or probate. The cons to a trust are that they can be a little bit complicated, but we’re here to help. We’ll show you how to transfer your bank accounts, real estate, and other properties into the trust to avoid probate. We have to put those assets in the trust during your lifetime, otherwise the trust doesn’t work.
The only real downside to a trust is it can be more costly up front. But if you consider the cost of an administration or probate when you pass, the trust does provide some long-term cost savings. Planning now will save your family money and stress when you pass, and avoid probate.
Contact Us So We Can Help!
If you want to avoid probate when you pass, you can complete this form or give us a call at (229) 226-8183. If you’d like to see this blog in video format, you can watch it below. Please be sure to SUBSCRIBE to our YouTube channel and click the bell notification button so that you’re notified each time we publish a new video.