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How to Avoid Probate

There are several ways to keep your estate out of probate.

Among the methods of avoiding probate are the following:

Living Trusts

Assets owned through a living trust do not need to be probated.

Joint Tenancy

If an asset is owned by two or people as joint tenants, it will usually not be probated. These assets can be identified by the words "joint tenants," or "in joint tenancy," "JT TEN," or similar wording. After the death of one of the joint tenants, the surviving joint tenant owns the asset, regardless of what the will of the deceased joint tenant says about that asset. However, joint tenancy is not recommended for assets that can increase in value, such as a residence, because the surviving joint tenant will not receive a "step-up in cost basis" to fair market value at the date of death of the other joint tenant.

Cost basis is one of the numbers used to determine capital gains. For many homeowners, the cost basis is the price they paid for their home, plus any capital improvements that have been made. The cost basis is subtracted from the selling price to determine the capital gains. When a married couple owns an appreciated asset as community property, the surviving spouse will get a step-up in the cost basis to the fair market value at the date of death of the other spouse. In other words, if the surviving spouse has to sell the residence, he or she is unlikely to have to pay any capital gains. But if the residence is held in joint tenancy, it is more likely that some capital gains tax may be due. The federal tax reform bill passed in 1997 allows the surviving spouse a capital gains exclusion of $250,000, but for some, even this amount may not be enough to prevent payment of capital gains tax when a residence is sold.

Small Estates

Some states provide that probate estates of $100,000 or less do not need to be probated. In some cases, the actual estate may be well in excess of $100,000, but this provision in the law can still be used. The reason is that many assets are not included in the definition of a probate estate, such as life insurance (unless it was payable to the estate), IRAs, 401Ks, assets held by a living trust, and joint tenancy assets.

Estates of less than $100,000 of probate assets are administered by preparing affidavits which are presented to the various institutions (banks, brokerages, etc.) that hold the assets. The assets are then turned over to the person named as executor in the will, and distributed according to the will. If there is no will, the assets are distributed according to the rules of intestate succession (in other words, to the nearest relatives of the deceased.)

Spousal Property Petitions

If the decedent is survived by a spouse, the spouse can file a spousal property petition with the court. The purpose of this petition is to change the titles of the assets to the surviving spouse's ownership. The petition is a simplified probate, and takes much less time than a full probate. Legal fees are usually much lower for this type of petition than a full probate.

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