This article discusses techniques for avoiding probate court and types of property that do not have to be probated. Keep in mind, that this is not an exhaustive or in depth discussion and it does not take the place of speaking with a qualified professional about your situation. Also keep in mind that it is not always necessary or even desirable to avoid probate court proceedings. It depends on each person’s unique set of circumstances. This article is intended to give you a broad overview and get you thinking about probate and the estate planning process.
Not all property goes through probate
Most people think that after they die, their property has to be probated. That is, it has to go through court to be divided between their beneficiaries if they had a Will or their heirs if they did not. That may be true, but isn’t always. A lot of property never passes through probate. For instance, a life insurance policy that list beneficiaries on the policy will automatically go to those beneficiaries when you die and will not have to be probated. The same is true for a retirement account such as an IRA or 401(k).
Land held with right of survivorship avoids probate
Property that you hold jointly with someone else may also avoid probate if it is held jointly with a right of survivorship. A right of survivorship means that if one of the owners of the property dies the property will automatically go to the remaining owner. The property does not go through probate. Land can be held jointly with right of survivorship as can personal property such as bank accounts or automobiles.
Land held in tenancy by the entirety avoids probate
In Arkansas (and several other states) there is also a unique type of landownership for married couples known as tenancy by the entirety. Tenancy by the entirety works the same as owning property jointly with right of survivorship – when one spouse dies the remaining spouse automatically owns the land without the need to go through probate. If land is transferred to both the husband and wife at the same time, it is presumed that they have a tenancy by the entirety (the deed does not have to specifically say so).
POD or TOD designations avoid probate
Bank accounts and brokerage accounts (for stocks and bonds) can avoid probate if there is a pay on death (POD) or transfer on death (TOD) designation with the financial institution. The account owner can fill out a form (sometime available on-line) with the financial institution stating the person(s) they want to own their account when they die. The money or stocks in that account will then automatically transfer to the person(s) listed on the POD or TOD form upon the death of the account holder.
Trusts can avoid probate
Another way of avoiding probate court that people often use is to set up a trust. Generally speaking, a trust is a written agreement between the creator of the trust, the trustee (person(s) or entity that manages the trust), and one or more persons who benefit from the trust (beneficiaries). The creator, trustee, and beneficiary can be, and often are, all the same person when the trust is created. However, after the creator dies, the trustee and beneficiaries will change. A trust is a separate entity than the creator, trustee or beneficiaries. Property placed in the trust is owned by the trust. Because the property is no longer in the name of the trust creator, it will not have to go through probate to be divided. The property in the trust will automatically go to the beneficiaries listed in the trust upon the death of the current beneficiary (which is likely the trust creator).
The creation and administration of trusts can be complicated. Therefore, it is recommended that you speak to a licensed attorney who practices estate planning to determine if a trust is right for you.
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If you would like to schedule a consultation to discuss the need for avoiding probate court or discuss planning your estate you can call our offices at (501) 960-6060 or click here.