The purpose of this guide is to provide on overview of probate, reasons to avoid probate, and ways to avoid probate.
What Is Probate?In a nutshell, probate is a court proceeding that occurs when a person dies. The purpose of probate is to validate the will of the deceased, create an inventory of the deceased person's property and appraise the property, pay debts and taxes, and distribute the remaining property as directed in the will.
Reasons To Avoid ProbateThere are three main reasons to avoid probate. First, probate is a lengthy and arduous process. Probate takes a minimum of six months, and can often last a year or even longer. Second, probate is expensive, due to the time and effort expended. Finally, probate is a public proceeding and is public record, meaning anyone can potentially have access to the details of that proceeding. Many people are under the impression that they can avoid probate by creating a will. However, simply have a will, by itself, will not avoid probate. There are two main ways an individual can avoid probate. The first and most common way to avoid probate is to create a trust. The second way is to approach the issue asset-by-asset.
Creating A TrustA trust is an instrument that continues after the death of the person who created it. Unlike a will, a trust can own property. The assets that are titled into the trust do not require a probate, since the trust is a living instrument and the trustee has authority and control over the assets in the trust. The creator of a trust will act as trustee during his lifetime, and have the ability to transfer assets to the trust, and use the assets for his benefit. Successor trustees are named in the trust, giving them authority to administer the trust when the trust's creator dies. There are a number of ways to set up a trust and customize it. Probably the most common type of trust is the revocable living trust. This type of trust allows its creator to make amendments to the trust, or revoke it during his lifetime. Usually a trust will include a "pour-over will," which says that all assets pour-over into the trust, and names beneficiaries and details the manner in which the assets are distributed. Creating a trust is a comprehensive and effective way to avoid probate.
Asset-By-Asset ApproachAnother less sophisticated means of avoiding probate is to approach the matter asset-by-asset. For most assets, an individual can designate a "pay-on-death beneficiary." This allows the asset to be distributed to the beneficiary at the time of the principal's death, without the headache and expense of a probate. Most retirement accounts and bank accounts allow the principal to designate a pay-on-death beneficiary. In Arizona, we allow people to deed their real property to a beneficiary, as a means of avoiding probate of real property. This is called a beneficiary deed, and it becomes effective upon the death of the grantor. The asset-by-asset approach might get the job done, but in many cases is less ideal than creating a trust. One reason it may be less favorable than a trust is because pay-on-death designations sometimes don't provide an option to designate contingent beneficiaries. They also give the principal less control over the manner of distribution to minors or young adult beneficiaries, whereas a trust can be customized to include minimum age restrictions for distributions to young beneficiaries.