When a loved one dies, the thought of settling his estate can be intimidating. If the decedent left a will, it may be necessary to file it with the court and begin probate, which can be a lengthy, expensive process. However, many estates can be settled without probate. In addition, even if the entire estate cannot be settled outside of probate, there may be specific assets, known as non-probate assets that are not subject to the probate process.
Many people create trusts to avoid probate. The most common type of trust is the living, or revocable trust. Other, more complicated, types of trusts are also used to avoid probate. The person creating the trust, sometimes referred to as the settlor, chooses a trustee to manage the trust assets. The initial trustee of a living trust can be the settlor, himself, but he must name a successor to take over upon his death. Unlike a will, for the trust to govern an asset, that asset must be owned by the trust. Real property, financial accounts and automobiles all must be in the name of the trust to be passed under the terms of the trust and avoid probate.
When an individual purchases a life insurance policy, she will likely choose a beneficiary who will receive the proceeds of the account upon her death. Once a beneficiary has been named, the policy will not be subject to probate upon the policy holder’s death. The beneficiary simply needs to complete a claim form and present a death certificate to collect the proceeds of the policy. It is important that the policy holder inform his chosen beneficiary of the existence of the policy, so that the beneficiary can begin the claim process upon the policy holder’s death.
Depending on how it is titled, real property may not be subject to probate because it can be owned jointly. The most common example is a husband and wife who real estate jointly, sometimes referred to as owning the property as tenants by the entirety." Upon the death of one spouse, the property passes automatically to the surviving spouse. Unmarried individuals can also own real property jointly with a right of survivorship. If this is the intention of the parties, it must be clearly stated in the deed. For example, the deed may list the names of the parties as “joint tenants with right of survivorship.” Similar to the husband and wife example, upon the death of one of the joint owners, the property will automatically pass to the surviving owner. An individual can also deed his residence to another, and maintain the right to use it during his lifetime. Upon his death, all of his interest in the property passes to the individual named in the deed.
Similar to life insurance policies, bank accounts and other financial accounts, such as retirement accounts and mutual funds, can have beneficiary designations. These accounts are non-probate assets. It is also common for bank accounts to be held jointly. The most common example is a husband and wife with a joint checking account. Also, many older individuals choose to add an adult child as a joint owner on a bank account. When one joint owner dies, the proceeds of the account pass to the survivor, by operation of law, no action is required. Often, these are referred to as “payable on death” accounts. In some states, there are laws permitting specific individuals to receive the proceeds of an account that is not held jointly and does not have a beneficiary designation without going through the probate process. For example, New York allows a spouse to collect the proceeds of an account not exceeding $30,000 by simply presenting to the institution an affidavit attesting to certain facts.
Most states have a procedure for settling an estate not exceeding a certain value by way of a less expensive, more streamlined process than probate. New York considers an estate comprised of personal property not exceeding $30,000 to be a small estate, while Washington sets the limit at $100,000. In certain states, such as Washington and New York, the small estate procedure cannot be used to settle any interest in real property. In some other states, the small estate proceeding can be used to settle interests in real property that do not exceed a certain value. For example, in California, the small estate proceeding can be used to settle an estate comprised of personal and real property not exceeding $150,000. In Missouri, the value of real and personal property cannot exceed $40,000. Check with your local probate court for your state’s small estate limits and how to begin a proceeding.