Estate planning and how to avoid probate
In a recent blog post, we discussed what might happen if you pass away without a will and what might happen with a will. When you pass away owning property in your sole name (regardless of if you have a will or not), your assets might need to go through probate in order for your heirs to inherit your property. Having a will does not avoid probate—it just determines who will receive your property. If you die owning property in your sole name without a will, your estate still passes through probate—but who receives your property will typically be determined under the laws of the state where your primary residence is at your date of death (the “intestacy laws”).
Probate is a court process to provide for an organized way of winding up a deceased person’s affairs. During this process, a personal representative or executor is appointed by the Probate Court to supervise the collection of your probate assets, payment of your final bills and taxes, and distribution of your assets according to either your will or the intestacy laws. This may or may not be what you intend and might be more expensive than if you made other plans in advance.
There are ways to distribute your property at your death according to your wishes without going through probate. While the techniques might vary from state to state, these typically include:
- titling property jointly with another (“joint tenants with rights of survivorship”)
- creating a beneficiary deed for real estate
- adding a “transfer on death” or “pay on death” designation to assets, such as bank or investment accounts, or by beneficiary designation for assets such as your retirement plan, IRA or life insurance
- creating a “revocable” or “living” trust and retitling your assets in the name of your trust
The trustee holds the legal title to the property owned in the revocable trust, not you as owner. The trust property is held by the trustee for your benefit during your lifetime. You can choose to serve as your own trustee as long as you are able. At your death, the property held in the trust is distributed by the successor trustee of the trust to those family members, friends or charities you name in your trust agreement, similar to the instructions you can leave in your will.
A Living Trust
There are many advantages to creating a living trust:
- Control: You can be your own trustee during your lifetime and then you name a successor trustee (such as a bank) to serve after you cannot or do not wish to serve.
- Flexibility: You can typically change the terms of the trust at any time while you are living. If you become disabled, your successor trustee can step in and pay your bills, manage your investments and allow you to avoid “living probate” where otherwise a court appointed conservator might be needed to manage your affairs. You can create trusts for your minor children or grandchildren to be created after your death, hold assets in further trust for disabled or disadvantaged beneficiaries and even create trusts for charities.
- Privacy: The terms of the trust and its assets and values are typically private, unlike a probate proceeding, which is a public matter where your will (if any) and list of assets are filed with the court and open to inspection by anyone.
Your living trust would be part of your overall estate plan, which would likely include a “pour over will” (just in case assets weren’t retitled into your trust’s name at your death), powers of attorney for financial and healthcare decisions and a living will.
Be sure to consult with an experienced estate planning attorney to discuss what estate plan is right for you under the circumstances. We also recommend discussing your options with a wealth advisor who can assist you with your financial goals, working together with your attorney and other trusted advisors.
UMB is not providing you with any legal or tax advice. You need to consult with your own legal and tax advisors to determine what estate plan is best for you and how the laws of the state governing your estate might affect you given your specific circumstances.
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Ms. Teson is a Senior Vice President and Private Wealth Management’s Senior Legal Counsel at UMB Bank. She is responsible for managing Private Wealth Management’s Legal, Fiduciary Tax and Real Estate and Unique Asset teams. She joined UMB in 1992 and has been a licensed attorney for 32 years. She is also a Certified Financial Planner.