Probate can be a costly and time-consuming process, especially for families with considerable wealth. What is probate and why is it sometimes required? All of us have basically two types of assets, probate assets, and non-probate assets. Probate assets are certain types of assets which, because of the nature of the asset, a probate court proceeding is necessary to pass the asset on to our heirs, even though we might have a Will with instructions as to where the asset is to go upon our death.
A common example of a probate asset is real estate. If we die with this asset in our name alone, the probate court must get involved to transfer the real estate to our heirs or to whom we designate it should go in a Will, due to the nature of the asset. Oftentimes, some simple pre-planning can establish a method for succession of ownership in the event of a loved one’s death in order to avoid probate. Probate in Minnesota is easily avoidable with a few steps to set up the right vehicle to help pass along ownership lawfully and clearly.
Due to the nature of probate assets, as described above, an easy way to think about this type of planning is to prepare the right kind of formal documentation that will transfer the probate asset as we desire at the time of death. The following are a few things you can do to prepare that documentation now and avoid the time and expense of probate later.
Making the Most of Joint Ownership
Initially, if it is possible to do so given the nature of the asset (e.g. real estate or certain financial assets), we can hold the asset jointly with another person. For real estate and bank & investment accounts, we can add a joint owner. This way if one joint owner dies, the asset passes to the surviving joint owner without probate. An example might be a single person owning real estate who gets married and wishes to add his or her spouse to the title as a joint owner.
Naming Beneficiaries on Bank and Retirement Accounts
Often the easiest thing to do is to name beneficiaries on accounts that allow it or make the account payable on death (POD) or transfer on death (TOD) to whom we wish. This is typically done through paper forms from your bank or brokerage, although many now accept digital signatures and verification. With a POD, TOD, or beneficiary designation, once the original owner dies, the account passes to whom designated by the original owner through the POD, TOD, or beneficiary designation, again avoiding probate. For married couples, adding spouses to the appropriate accounts may require additional paperwork.
Transfer on Death Deed for Real Estate
To keep real estate out of probate, we can complete a Transfer on Death Deed and file it with the County where the real estate is located and, upon our death, the real estate transfers to whom we designate without probate.
Create a Revocable Living Trust
This type of trust covers three situations: (1) we can operate the trust while we are alive, sound, and competent; (2) it can operate through our designated successor trustee if we become mentally incapacitated; and (3) it can dispose of our estate as we designate after we have died.
Once a revocable living trust agreement is created, all appropriate assets such as probate assets must be titled in the name of the trust or otherwise appropriately connected to the trust so that they become owned by the trust upon our death. This allows the assets to avoid probate through ownership via the living trust instead of the person. An additional bonus of this vehicle is that the trustee can pass along assets to other loved ones (via the trust) as long as it’s set up correctly. A trust can also avoid some of the shortcomings of the other ways of avoiding probate as illustrated by the following examples:
- I have two adult children who each have children of their own (my grandchildren). I name my adult children as secondary beneficiaries on my assets, after my spouse. My spouse dies and right before I die, one of my children dies. I forget about the implications of this or do not think about it or am not mentally competent to address the situation. When I die, all of the assets carrying the above beneficiary designations pass to my surviving adult child only and my grandchildren whose father or mother (my son or daughter) died right before me miss out on receiving their parent’s share of these assets. Therefore, simple beneficiary designations may not be the best choice.
- I name my two adult children on my Transfer on Death Deed but do not consider the fact that they do not get along with each other. I have now made them joint owners of my real estate and may have created a great problem for them instead of a benefit. One child refuses to sell the real estate and wants to live in the house but cannot afford to and the other child might have to pursue an expensive court proceeding called a partition action to force the sale of the property.
Fortunately, protecting your family’s legacy is as simple as enlisting the help of a qualified estate planning attorney who will not only gain an understanding of your assets and how they can best be passed along to your loved ones, but will also gain an understanding of the personalities and family dynamics involved.
Families across Wayzata and the Twin Cities trust attorney John Waldron at Waldron Law Offices, Ltd. to help guide these important decisions about their most valued assets. He has more than 30 years of legal experience helping clients with estate planning, the probate process when perhaps proper planning was not done, and more. Call (952) 471-0940 today to schedule a free consultation.