About 70% of U.S. adults don’t have a will or trust, according to various surveys. That doesn’t mean they’re neglecting estate planning.
Most people are exempt from estate and gift taxes under current law, so they don’t need a tax avoidance plan.
The main goals of estate planning these days are to transfer property to the intended heirs in the most efficient way possible. Avoiding the expensive, time-consuming, and public probate process often is an important way to meet those goals.
The title of this article is adapted from what was probably the first book to encourage people to take actions without attorneys, Norm Dacey’s How to Avoid Probate!, published in 1965. Dacey’s publisher says the book sold over 1.5 million copies, after they fought numerous bar associations and allegations of practicing law without a license.
Dacey was an advocate of the revocable living trust to avoid probate and explained how to create one without a lawyer.
There are many other tools for avoiding probate that can be implemented easily and at little or no cost and without an attorney.
First, here’s a warning.
Each of the strategies has risks that might not be anticipated by someone without estate planning experience.
Suppose a married couple owns all their assets in joint title with the right of survivorship.
After one spouse dies, the surviving spouse automatically has full legal title. Now there’s the risk the surviving spouse is convinced by a recent acquaintance to give them signature authority or joint title to financial accounts. Soon, the accounts are cleaned out and the acquaintance has disappeared.
Or the surviving spouse is persuaded to transfer or bequeath most of the wealth to a charity or caregiver or to make bad investments.
Those are a few potential consequences.
Generally, assets are exempt from probate when title to them passes to the next owner by a contract or by terms of the of law.
The living trust probably is the most well-known way to avoid probate. The trustee manages all the assets or transfers them to new owners as described in the trust agreement. The probate court isn’t involved.
Retirement accounts, such as IRAs and 401(k)s, avoid probate. The beneficiary designation filed with the account administrator or trustee determines who inherits them. Your will and the probate court aren’t involved.
Life insurance benefits and annuities are distributed to beneficiaries named in the contracts. The insurance company pays the benefits after receiving the death certificate and other information. There’s no involvement of the probate court, unless the estate is a beneficiary.
Joint accounts and joint title are widely-used ways to avoid probate.
Married couples can own real estate or financial accounts through joint tenancy with right of survivorship. Some states also allow tenancy in the entirety for real estate owned by married couples.
In either case, the spouses own the property jointly while both are alive. The surviving spouse automatically takes full title after the other spouse passes away.
Joint title also can be established between nonspouses. The surviving joint owner automatically inherits full legal title to the account without probate when the other joint owner passes away.
It’s fairly common for an older person to create a joint account with a younger person at a financial institution as a way to determine who inherits property.
If at some point the older person is unable to manage his or her affairs, the younger person can manage the older person’s finances without a power of attorney.
But there are drawbacks.
All joint owners have equal rights to the property. A joint owner can take withdrawals from the account or change how it is invested without the consent of the other owner. Joint accounts are one of the most common means through which financial fraud and abuse are inflicted on older people.
Once joint title is established, a change in ownership requires the consent of all joint owners.
Protection from creditors varies among the states. Some states don’t allow creditors to claim any of the property unless all joint owners owe the debt. Other states allow creditors, at least in some cases, to claim a share of the property when only one joint owner is liable for the debt.
The person who inherits full title of an account through joint title might not receive some of the tax benefits, such as increasing the tax basis, available when assets are inherited in other ways.
Joint title probably is the least desirable way to avoid probate when the joint owners aren’t spouses.
A transfer on death (TOD) provision, which I discussed here, avoids probate without some of the disadvantages of joint title.
Most financial institutions now have TODs in their new account applications and allow the designated beneficiary to be changed or added later. TODs, also known as payable on death (POD) accounts, also are allowed in real estate deeds in many states.
Some states allow a variation of the TOD for real estate known generally as the ladybird deed.
The deed names a beneficiary to receive title after the owner passes away. The initial owner has unlimited control and can sell, give, or encumber the property or terminate the rights of the beneficiary unilaterally. If the initial owner sells the property, the sale proceeds don’t have to be shared with the beneficiary.
Legal title to the property passes to the beneficiary as soon as the initial owner dies.
Another way to avoid probate, which is used most often with real estate, is for the current owner to split the title into a life estate and remainder estate. Usually, the current owner retains the life estate and names one or more beneficiaries as owners of the remainder estate.
The life estate holder has unlimited use of the property for life but generally can’t sell, give, or encumber the property without the consent of the remainder owners. The life estate holder also can’t unilaterally change the remainder owner or alter the remainder owner’s rights.
After the life estate owner passes away, the remainder interest owner receives full title to the property by operation of law without going to probate court.
Some business co-owners avoid probate with an inheritance agreement, a contract in which the owners state who will inherit after an owner’s death. A court isn’t involved unless there’s a disagreement about the contract.
The agreements, however, can be cumbersome, and there aren’t many court precedents for them, especially when business co-owners aren’t involved. It’s better to use one of the other methods to avoid probate.
When using any method of avoiding probate, it’s important to understand the potential gift tax consequences.
Adding someone as a joint owner to your account or creating a remainder interest in your property is a gift. The gift tax consequences depend on the value of the property.
There is no gift tax if the value doesn’t exceed the annual gift tax exclusion amount ($19,000 in 2025). Any value of the gift exceeding the exclusion amount will reduce your lifetime estate and gift tax credit, or exemption. Gift taxes are due only after your lifetime exemption is exhausted.
There are no gift tax consequences to naming someone as the beneficiary of a living trust, retirement account, life insurance policy, annuity, TOD, or ladybird deed. Those are incomplete gifts, because the beneficiary designation can be changed at any time and the beneficiary has no rights until the property owner passes away.
If your estate might be taxable, know assets that avoid probate often are included in your taxable estate.
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