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Joint-ownership, proper titling and trusts help keep assets private

There is a common misconception that if you have executed a Last Will and Testament, probate will not be required to transfer your assets to your intended beneficiaries upon your death.  Unfortunately, this is not the case.   In fact, a Last Will and Testament requires that the probate of your estate occurs upon your death in order for that to happen.

A Last Will and Testament is the document that in general terms dictates: (1) Who you want to handle the probate on your behalf. i.e.: Who is your executor or personal representative?; (2) Who you want to receive your assets. i.e.: Who are your beneficiaries?; and (3) Who is designated as guardian for your minor children i.e.: Who will raise your children if they do not have a surviving parent?

Although probate is the default way of retitling assets and making sure your creditors get paid after your death (even if you don’t have a Last Will and Testament), there is often a better way to get this same result.  The downsides of probate include that it is public, the process generally takes at least nine months to a year to be completed (IF it is not contested and there are no extraordinary issues), and it is costly.  Potentially even worse, beneficiaries often get their distribution outright and immediately upon the close of the probate.   As we all know, there are many times this is not the best outcome for heirs or beneficiaries, especially if the person is a minor, immature, not a good money manager, has special needs or would benefit from creditor protection.

If you would like to avoid the probate process, there are three main methods that can be used to pass assets to beneficiaries after you die:

  1. Owning Assets Jointly with a Right of Survivorship:

The first way to accomplish transferring an asset outside of probate is by owning an asset jointly with another person with a right of survivorship.  By doing this, the ownership of the entire asset will pass directly to the surviving owner.  In other words, the asset goes to “the last person standing.”  This can work well when the first owner dies, but the surviving owner will need to make sure that they have a plan in place after their own death or else we are back to the drawing board and a probate will take place.   Also, if one of the owners becomes incapacitated, it may make it difficult for the spouse or other owner to manage the asset, especially when it comes to the sale of real estate.  The surviving owner will also have full discretion about who will ultimately get this asset, so this is something to keep in mind when choosing this option.  Joint ownership also raises a risk of creditor issues.  Some clients add children as joint owners for probate avoidance purposes.  If a child is pursued by a creditor, the creditor might end up with part of the asset.  A creditor could include an ex-spouse, a plaintiff in a lawsuit, the IRS and a bankruptcy trustee.  Examples of assets where you could utilize this option would be: bank accounts, investment accounts, vehicles and real estate.

  1. Adding a Person or Charity as a Beneficiary of an Asset:

Assets that have a person or charity listed as a beneficiary will also avoid the probate process.  These assets will be paid out directly to the listed beneficiary immediately and outright.  There are several downsides of relying on this option:  (1) Listing minors will ultimately create issues because it will require a conservator be named until they reach the age of majority,