"You have to avoid probate!" That seems to be the common perception, which may or may not be true.
My most recent blog defined “probate” and a “probate estate.” (What Is Probate?) This blog explains ways to avoid probate.
Let me begin, however, by dispelling a myth. A Last Will and Testament does NOT avoid probate. A Will is filed at probate court and guides your executor in distributing your probate assets after you die.
So, how do you avoid probate?
Beneficiary designations are very common and can be used on life insurance policies, retirement accounts, investment accounts, etc. In Ohio, you can also name a beneficiary for your real estate via a Transfer on Death Designation Affidavit. You can add a beneficiary to your car or boat title as well.
Other Transfer on Death and Payable on Death designations for bank accounts and stocks are means to avoid probate, as are joint accounts with rights of survivorship.
A Living Trust also avoids probate, but only if you properly fund your Trust. You must transfer your assets into your Trust prior to your death or name your Trust as the beneficiary of other assets in order to avoid probate.
Gifting and charitable donations allow you to transfer assets prior to death.
If you carefully follow a plan for probate avoidance, you may not have any probate assets in your estate. Please keep in mind, however, that these probate avoidance techniques are not fullproof. Beneficiary designation forms are often filled out incorrectly. The named beneficiary may pass away, and the owner may forget to designate a new beneficiary before his/her death. It’s quite common for people to execute Trusts but then fail to fund them properly.
In addition, beneficiary designations do not often work as you had planned. For example, a sweet elderly lady in Lakewood thought she had done everything to avoid probate at her death. She named four relatives as the beneficiaries of her bank accounts. Just days before her death, however, her sister passed away. You would think that the bank would distribute the bank funds to the three surviving beneficiaries, right? Wrong. The bank made the executor probate the deceased sister’s one-fourth share.
If probate avoidance is one of your goals, it is important to discuss the best means to accomplish that goal with your estate planning attorney.