Does Your Estate Plan Avoid Probate?
Probate
Probate is the only part of my job that makes me cringe. Funny thing is, if a client has completed the probate process due to the loss of a family member, it may make them cringe too. It has nothing to do with the clerks or judges—all excellent public officials doing a great job. It has everything to do with the inherent drawbacks of the probate process.
Robert, Kelly and I address probate avoidance in almost every estate plan we prepare. Typically, it means a client leaves our office with asset titling and beneficiary homework to do. However, some clients do not complete their homework prior to passing away. This results in opening probate estates even though the client wanted to avoid probate altogether. Talking about avoiding probate is one thing; actually avoiding it is another. So, my question for all of you is, “Does your estate plan actually avoid probate?”
What Is Probate?
Probate refers to a division of your county court of common pleas that handles special matters such as estates, guardianships, marriages and other areas. If you pass away and your assets do not avoid probate, then a probate estate must be opened in your name to distribute those assets under your will or under Ohio law. Thankfully, probate is a choice, not a requirement. If you have no probate assets, there is no need to open a probate estate.
Why Do You Want To Avoid Probate?
Occasionally, a client wants to run his/ her estate through probate because it accomplishes a special objective or addresses a unique concern. However, the vast majority of estate plans share a common goal: avoid probate at all costs. Here are some of the more common reasons you might want to avoid probate:
Privacy
Probate filings are almost completely public, meaning anyone can request a copy of your probate file, which will include values and final distributions.
Paperwork
All probate estates require some paperwork, some as much as three separate rounds. Typically, all family members must sign some probate documents.
Expense
Probate always costs something, usually court fees and attorney’s fees. Probate avoidance can be a cheaper alternative to opening a probate estate.
Time
Without probate, a full administration can be completed in a few months. With probate, an administration may take months longer to complete. Tied Up Assets: When assets are going through probate, they are tied up in the estate and subject to court supervision until the process is almost complete.
Debt
Ohio law states a creditor cannot force your family to open a probate estate so a company can collect on an unsecured debt (such as credit card debt) you had when you passed away. If someone avoids probate, the unsecured debt may go away because there is no probate estate for a creditor to file a claim against.
What Are Probate Assets?
The key question when discussing probate avoidance is whether an asset is titled or not titled. Here are some examples of each:
Titled Assets
Real estate, vehicles, trucks, trailers, boats, bank accounts, businesses, investment accounts, retirement accounts, bonds, stock (including co-op stock) and life insurance policies.
Non-titled Assets
Farm equipment, furniture, appliances, jewelry, guns, tools, antiques, art and other personal items.
Titled assets, if not set up to avoid probate, must go through probate in order to be distributed. For example, if you have a bank account solely in your name and it does not avoid probate, your spouse or children will need to open a probate estate to obtain ownership of the account. There is no other option, which makes titled assets so crucial.
Non-titled assets might avoid probate if your estate plan is set up correctly. To address probate for your non-titled assets, talk with your estate-planning attorney about the available options.
How Do You Avoid Probate And Who Can Help?
The first step to avoiding probate is being aware of the titled assets you own. As a rule, it is hard for a titled asset to avoid probate if you forget you own it. The safest way to come up with this list is to sit down and think of each asset you own. As you might expect, this could take a while.
Next, work with your professional team to start knocking out each asset one-by-one. To help with this process, you may need an estate-planning attorney, your local bank manager, a financial planner and an insurance agent. For each asset, you are looking to appoint a transfer on death beneficiary, payable upon death beneficiary, or owner with survivorship rights. Usually the appointed beneficiaries are spouses or family members. Each bank, financial institution or insurance company will have their own forms for this process, so you will need to talk to each one individually.
No surprise, this is a tedious process. However, if an asset has a beneficiary designated, the asset will automatically transfer to the beneficiary upon your death, meaning it avoids probate. The only requirement is completing some paperwork. Again, your professional team will be able to help with this process. Focus your time and attention on the titled assets because these are the assets that must go through probate if not handled correctly.
If you have already completed your estate plan, I encourage you to review the plan with your attorney to see if it avoids probate. If you have not completed your estate plan, do not fret. There is still time to avoid probate. Reach out to a farm estate-planning attorney in your area to start the process. In your initial meeting, really drive home the importance of avoiding probate in your plan. As you go through this process, be sure to preserve some documentation of your efforts to make the administration process easier on your family. Remember, probate is a choice and you can choose to avoid it.