Probate is the legal process of proving your will is valid in the state of your legal residence. If you leave a will, your assets will be distributed as you wish after the will goes through probate. Some states allow exceptions, so become familiar with your state's provisions.

Probate:

Provides a legal record of title transfer for estates containing real estate.

Is more efficient than lawsuits for notifying creditors and settling claims when an estate owes debts.

Has a reputation for long delays and high legal and administrative fees in some states.

Avoiding probate has become a major focus of estate planning for some individuals. If you wish to avoid probate, you must generally leave property to your heirs by means other than a will.

Joint Ownership

One method of avoiding probate is to properly structure joint ownership of your assets so they automatically go to the surviving owner without a will. However, joint ownership must be carefully structured to ensure the surviving owner receives the full increased value of the assets.

Forms Of Joint Ownership
Joint Tenancy With Right Of Survivorship	Each partner has ownership. Property passes directly to the surviving joint tenant(s) when one owner dies. When the final owner dies, a will is required to transfer the assets held individually by that owner.
Tenancy By The Entirety	For ownership that may not be equal among the joint owners. The assets will go through probate, since each joint owner names a beneficiary in their will for their portion. At the death of the joint owner, their interest will pass to the beneficiary, not the remaining joint owner.
Tenants In Common	For ownership that may not be equal among the joint owners. The assets will go through probate, since each joint owner names a beneficiary in their will for their portion. At the death of the joint owner, their interest will pass to the beneficiary, not the remaining joint owner.

Assets With Beneficiaries

Your will — and therefore probate — usually does not affect assets for which you name a beneficiary. These assets include certain trusts, IRAs, pensions, life insurance policies, Transfer On Death (TOD) and Pay On Death (POD) accounts.

These assets and other non-testamentary assets pass directly to your beneficiary and are not subject to probate unless you name your estate as your beneficiary.

Joint bank accounts may be temporarily frozen during probate proceedings. The survivor may not have access to this money until the proceedings are completed.

Comparing Property Transfer Methods
Method	Advantages	Disadvantages
Will	Simple preparation; relatively low legal fees; primary way to name a guardian for minor children.	Involves time and expense of probate; becomes public record.
Revocable Living Trust	Avoids probate; offers flexibility in providing for heirs; generally remains private	More expensive to create than a will; expense for retitling property to be put in trust; may require professional management and associated fees; may not save estate taxes.
Testamentary Trust	Protects children's inheritances; grantor can retain some control of assets.	Assets must go through time and expense of probate; annual cost to administer; may require annual federal income tax return.
Irrevocable Trust (Life Insurance Trust)	Removes life insurance proceeds from insured's taxable estate.	Cannot name self as trustee; cannot have any living ownership interest in a life insurance policy; if insured is original owner, transfer of ownership must occur 3 years before death to avoid estate tax; may require annual federal income tax return.
Joint Tenancy With Right Of Survivorship	Simplest way to avoid probate on first owner's estate, because property automatically passes to surviving joint tenant(s).	Surviving tenant(s) loses half the increased value of assets in a common-law state; can complicate use of bypass trust.
Beneficiary	Simple, easy to update or change. Typically no cost.	Supersedes a will or trust and must be synchronized with an estate plan.

Next: Business Owners' Considerations

Updated Thursday, June 03, 2010

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