Why Avoid Probate? Why is everyone seemingly so concerned with avoiding probate? The answer lies in the definition of probate itself: Probate is the process by which a court determines who gets a deceased person’s assets and then transfers title to them. As with all court procedures, probate is time consuming, costly, public, and often times adversarial. On the flip side, with a little bit of simple estate planning, most of these court-induced burdens can be avoided. Let’s take a look at the most common and cost-effective ways of avoiding probate. Revocable Living Trust (RLT) An RLT is essentially a Will that doesn’t need to be probated. Upon your death, instead of a family member having to petition the court to distribute your assets and appoint a guardian for your children, the trustee begins doing so immediately, without court supervision and according to the terms of your trust. Prior to your death, you retain complete control over the trust and its assets. The trick here is ensuring that all of your property is properly transferred into the trust. Any property left outside the trust (and not falling into one of the other categories below) will likely have to be probated. Gifts One way to avoid probating property is to simply give it away before you die. Of course, there are some obvious downsides to gifts (you immediately lose control of the property) and some not-so-obvious ones—the property becomes subject to the recipient’s creditors, the property loses the stepped-up basis it would enjoy if it was transferred at death, etc. Joint Ownership with Right of Survivorship Property owned by multiple people as joint tenants automatically passes to the surviving joint tenants. No probate needed. Bank accounts and homes are often placed in joint tenancy for this reason. Like gifts, however, joint tenancy has its limitations—all tenants have equal control, the creditors of either tenant can reach the asset, etc. Furthermore, joint tenancy really only postpones (instead of avoids) probate until the last joint tenant dies, at which point the property will need to be probated. Life Estate Another option for avoiding probate is to place the property in a life estate. This strategy allows you to reserve the right to use and enjoy the property for the rest of your life and determine who automatically receives it upon your death, sans probate. However, as a life tenant, you have a responsibility to maintain the property and cannot sell or mortgage it without the remainderman’s permission. Pay-on-Death (POD) Accounts Many bank accounts can be converted into POD accounts by filling out a simple form in which you identify a beneficiary. You keep complete control of the account during your lifetime, doing with it as you please. When you die, the money in the account goes directly to the named beneficiary. This is the easiest and cheapest (free!) way to avoid probate. Beneficiary Designations Beneficiary designations on retirement accounts and life insurance policies function just like pay-on-death bank accounts. When you die, the assets pass directly to the named beneficiaries without the need for probate. Make sure you’ve designated primary and secondary beneficiaries on all of your accounts and policies. Transfer on Death Deed — Real Estate In Oklahoma, an owner of real property can execute and record a TOD deed that identifies beneficiaries who will receive the property upon his or her death, without probate. The owners control over the property is not affected and a person designated as a TOD beneficiary has no interest in the real property until the death of the owner. The designation may be revoked or changed at any time and the beneficiary takes only the interest held on the date of death, subject to all encumbrances, reservations, and exceptions.
A word of warning: the transfer at death is not automatic. To obtain title to the property, the beneficiary must file an affidavit of record that affirms numerous facts and includes a copy of the grantor’s death certificate within 9 months of the grantor’s death. If the beneficiary fails to do so, the property reverts to the deceased grantor’s estate. If you execute a TOD deed, make sure your heirs know about the 9 month window. Transfer on Death Deed — Motor Vehicles According to Title 47, Section 1107.5 of the Oklahoma statutes, “title of a motor vehicle that is not subject to any lien or other encumbrance may be transferred in transfer-on-death form by filing with the Tax Commission a written notice of transfer signed by the transferor [the current owner] and designating the transferee [the owner upon death]. Such notice shall transfer ownership of the vehicle to the transferee upon the death of the transferor.” A designation of the transferee may be revoked or changed at any time prior to the death of the transferor by filing an amended notice with the Tax Commission, filing a new TOD deed, or transferring ownership of the vehicle to another person. After the transferor dies, the transferee can obtain title to the vehicle by submitting an affidavit to the Tax Commission verifying the transferor’s death. The TOD deed form can be found here: www.ok.gov/tax/documents/771.pdf. Conclusion Avoiding probate doesn’t have to be complex or expensive. For many assets, it is simple and free. For others, it may involve a bit of effort and a small amount of money, but the long term benefits usually outweigh the short term costs.