Probate is the court process through which the assets of a decedent are retitled. When a person dies without a will, his assets are distributed in accordance with the state's laws of intestate succession. When a person dies with a will, the will must be submitted to and accepted by the probate court.
When probate avoidance planning has not been implemented prior to death, the state will require a probate court proceeding if the deceased was a resident or owned assets in the state. Probate can be supervised or unsupervised. In an unsupervised probate, the appointed estate administrator manages assets, pays any debts, files required tax returns and various court documents, and distributes the estate assets. However, the court may at any time require the process to be supervised (usually when someone expresses concern about the estate administration). In a supervised probate, the probate judge must approve every detail of the estate administration.
Because probate can be a lengthy, costly and public process, many people choose to avoid it. There are a number of legal strategies that will allow you to pass property to another person after death, without going through probate.
• Joint Tenancy With Right of Survivorship. Adding another person to your assets as a joint owner or “joint tenant with rights of survivorship” will allow your property to pass to them upon your death without going through probate. There are downsides to this strategy, however. Once a co-owner is added, he or she cannot be removed without his or her consent, and you can't sell or refinance without his or her signature. Adding another person to your title also subjects your property to the claims of the other person's creditors. Finally, this form of ownership is not available in every state. Tennessee, for example, does not recognize joint tenancy with right of survivorship.
• Community Property with Right of Survivorship. Married couples in Arizona and California may hold title as “community property with right of survivorship”. This form of ownership allows the property to automatically pass to the surviving spouse without going through probate and provides certain tax benefits as well.
• Tenancy by the Entirety. Married couples in Tennessee may hold title in “tenancy by the entirety”. This form of ownership provides limited asset protection while both spouses are alive and allows the property to automatically pass to the surviving spouse without going through probate.
• Beneficiary Designations. Alaska, Arizona, California, Colorado Oregon (among other states) allow Transfer on Death (TOD) designations to be added to real property. Most states also allow or Pay on Death (POD) beneficiary designations on bank accounts and securities. Arizona, California, and Colorado (among other states) allow TOD designations on motor vehicles as well. Beneficiary designations like these are preferable to joint tenancy in that they allow you to transfer property only upon your death without giving away current ownership. One of the drawbacks, however, is that it can be difficult to obtain an equitable distribution of property among your heirs by utilizing beneficiary designations. Additionally, understand that if you have beneficiaries listed on your assets, those assets will be distributed upon your death to the listed beneficiaries, even if your last will and testament states otherwise. Finally, it is a little more difficult to change these designations if you have a change of heart, because each involves filing revised paperwork with the county, DMV or bank.
• Revocable Living Trust. A Revocable Living Trust is a legal document that allows you to establish a separate entity (the trust) to “hold” legal title to your assets while you are alive, and to name trustees to manage those assets according to the trust terms. Typically, you serve as the trustee while you are alive, managing your assets for your own benefit. Upon your disability or death, the trust terms appoint your successor trustee who then continues to manage — or distribute — the assets held in trust. A properly drafted trust can accomplish many goals, including guardianship and probate avoidance for your estate and bloodline, marital and creditor protection for your children. Living trusts are also easier to update and amend than other types of non-probate transfer techniques such as TOD and POD.