What is Probate Avoidance?
When an person dies owning property solely in his or her name without a beneficiary designation, a probate is required. If there is a Last Will and Testament, the probate court will ensure that property passes according to the terms of the Will. Yes, a Will guarantees a probate! If there is no Will, the property will pass to the individual’s heirs at law pursuant to the Florida Intestate Succession statute overseen by the Probate Court.
It is possible to pass property to another person without going through the probate process. Keep in mind that although it is often beneficial to avoid probate because it can be public, costly and time consuming, some probate avoidance strategies have pitfalls. There are a number of legal strategies that will allow you to pass property to another person after death, without going through probate.
Adding another person to your assets as a joint tenant or “joint tenant with rights of survivorship” will allow your property to pass to the other individual upon your death without the need for a probate proceeding. The obvious pitfall is that while you are alive the other owner has access to 100% of that asset and the asset is subject to any claims of the co-owner and/or a creditor of the co-owner. If you use this strategy with real estate, the person you intend to receive the property will receive it but will not get the benefit of a stepped up basis after death. Additionally, if the co-owner passed before you the asset is again a probate asset.
Adding a Pay on Death (POD), Transfer on Death (TOD) or a In Trust For (ITF) on all bank accounts that do not have a beneficiary designation, like an IRA. The account will pass to the named person without going through a probate proceeding. This option does not allow the person any current ownership interest. Again, if the designated person passes before you the account is again a probate asset.
Adding beneficiary designations (primary and contigent) to your property (usually IRAs, Life Insurance and other retirement accounts) allows you to name an individual to inherit your property at your death without giving them any current ownership interest. This type of property will pass to the individual of your choice without going through a probate proceeding. One of the problems associated with beneficiary designations is that often the estate is not divided equally among the family as was intended by the individual. Many times beneficiary designations do not have the flexibility of a Will in that if you named a child who predeceases you, your grandchildren do not step into their deceased parents shoes.
Revocable Living Trust
Revocable Trusts are documents wherein an individual “Settlor” creates a Trust instrument and names an individual (usually themselves) as “Trustee.” The Settlor then transfers property into the Trust and the Trustee manages the property and distributes the property according to the terms of the Trust. Unlike the addition of joint tenants or beneficiaries on your accounts, which may lead to conflict among family members, a Revocable Living Trust allows you to specify how and when you wish your property to be distributed. A Revocable Living Trust also avoids some of the adverse tax consequences associated with joint titling and beneficiary designations, while accomplishing the same goal of avoiding probate. Trusts are flexible in that beneficiaries can be established to follow bloodlines which the other options above do not normally allow.
The above information is general. Before taking any action to avoid probate, you should consult an experienced estate planning attorney who can examine your specific situation and advise which options would best fit your situation.