Probate: How it can be Avoided

The Probate Process

Probate is the legal process by which property in an estate is distributed to the beneficiaries and heirs of the decedent. Beneficiaries are persons provided for in a will; heirs are persons who are entitled to the assets of a decedent under state law where there is no will.

Probate is generally required if the decedent owned property in his or hers name at the time of death.

The probate process can be lengthy and cumbersome. It begins with the filing of an application for probate and a presentation of the decedent's will, if any, to a probate court judge. The judge then appoints a personal representative or executor, and may require posting of a bond. The personal representative or executor then collects all of the decedent's assets and ascertains all of the decedent's debts. An inventory is then filed with the court and the debts and estate expenses of the decedent are paid. A final income tax return is filed and an accounting is rendered to the court and approved. Finally, the remaining assets are distributed to the beneficiaries or heirs, and the estate is closed. The process can take from approximately six months to many years, depending on the size and complexity of the estate.

Advantages and Disadvantages of Probate

The advantages of the probate process include:


• A probate court will normally respect a decedent's designation of a guardian in a will, unless it is to the exclusion of a surviving spouse. A guardian cannot be appointed except through a probate process.

• A notice to creditors is published as part of the probate process, and creditors have only a limited period of time in which to file claims against the estate assets. If a creditor does not timely file a claim, the claim is lost.

• The probate process ensures that all assets of the decedent are distributed and the estate is closed with finality.


The disadvantages of the probate process include:


• The substantial expense of the probate process.

• The time spent in the probate process, during which assets are in limbo and cannot be transferred to their intended beneficiaries.

• The probate court, rather than the decedent's family, controls the assets of the decedent.

• The probate file is a matter of public record, for anyone to see.

An estate planning or elder law attorney can advise on whether the disadvantages of probate outweigh the advantages in particular circumstances, and recommend what, if any, steps should be taken to reduce, if not entirely eliminate, the number of assets that must pass through probate. As with many other legal matters, determining whether and how to avoid probate is a complex legal matter involving the balancing of a variety of factors, including the potential loss of control over assets placed into trusts.

Probate Avoidance Tools

Joint Tenancy with Rights of Survivorship. Joint tenancy is the easiest and most inexpensive way to avoid probate. It is merely a documentation of title to an asset in two or more persons such that, in the event of the death of one of the persons, the surviving person(s) automatically owns the asset without any need to resort to the probate process. Although many people are aware of the use of joint tenancies by spouses in the ownership of real estate, joint tenancy ownership is also available for brokerage and bank accounts. A joint tenancy with right of survivorship is normally designated by titling an asset as follows: "John Doe or Jane Doe as joint tenants with rights of survivorship." Because both joint tenants are entitled to use the asset during their lifetimes, you should only enter a joint tenancy with someone you fully trust.


Trusts. A trust is a legal entity that comes into existence when a person (the grantor) signs a trust document which creates the trust, provides for the immediate or later funding of the trust, names a person to administer the trust (the trustee), and provides and contains guidelines for the later distribution of the trust income and assets to one or more beneficiaries. Because the assets placed into trust no longer legally belong to the grantor, they are not included in the grantor's estate and do not have to go through probate. Grantors often name themselves as trustees of their own trusts, and use the trusts for their own benefit during their lifetimes.


Land Trusts. A land trust is a form of real estate ownership by which you put title to the land in the name of a trustee, but you keep all of your rights to the property as if it remained in your name. The trustee merely holds title. When you die, a beneficiary named in the trust document becomes the owner of the property and can immediately take possession. Land trusts are not allowed in all states and must be carefully drafted where permitted. Consult your attorney.


Life Insurance. A decedent's life insurance proceeds generally are paid, outside of probate, to the beneficiary named in the life insurance policy. Life insurance not only remains a very popular and viable probate avoidance tool, but also provides a method with which to pay estate taxes without liquidating assets, such as a family business.


Retirement Plans. IRAs and 401(k) plans include beneficiary designations that provide for a transfer of the assets to a person, normally a spouse, in the event of the death of the plan holder. Anyone considering naming someone other than a surviving spouse as beneficiary should talk to an attorney about the tax ramifications.



Gifts. You can transfer up to $11,000 a year to any number of persons, free of gift tax. A husband and wife each are entitled to this exemption, so up to $22,000 a year can be gifted to each child of the couple per year. So long as these requirements are met, the person receiving the gift does not have to pay taxes on the gift.


Pay on Death (POD) Bank and Securities Accounts. Most banks permit their depositors to set up their accounts so that, upon the death of the primary account holder, the funds remaining in the account automatically go to a person named as beneficiary in the account documents. This differs from a joint tenancy in that the beneficiary under a POD account cannot gain access to the account funds until the death of the primary account holder. Many states have passed laws permitting securities accounts to be owned and transferred on death in the same manner. Ask your attorney if this is available in your state.


Transfer on Death Automobile Registration. Some states permit automobile registrations to be transferred automatically on death in the same manner as POD accounts. Ask your attorney if this is available in your state.


State Law Exemptions from Probate. Many states, including Michigan, allow smaller estates to go through a simplified probate procedure or avoid probate altogether.