Avoiding Probate to a Fault – Don’t Believe Everything Your Neighbor Tells You

One of the most important aspects in any properly implemented estate plan is the avoidance of probate, or the estate administration process.  Probate is defined as the legal process wherein the estate of a decedent is administered.  Generally, the probate process involves the collection of a decedent’s assets, liquidating liabilities of the decedent, paying necessary taxes, and distributing property to heirs.  The personal representative is held to strict statutory and fiduciary guidelines to administer the estate in accordance with the will and the laws of North Carolina.  Probate assets generally consist of the following items:

•Accounts in the sole name of the decedent

•Joint accounts without right of survivorship

•Stocks and bonds in the sole name of the decedent

•Cash

•Other personal property (vehicles, boats, furniture, etc.)

•Real estate willed to the estate or real estate directed to be sold

So what’s the big deal?

 To begin the estate administration process, the personal representative opens up the estate in the office of the estates division with the clerk of superior court.  The estate administration process is normally not completed in a timely manner and can be cumbersome.  In addition, barring extraordinary circumstances, all probate documents are made available to the public, which means any one of your neighbors may venture to the clerk of court’s office to see exactly what assets you possessed at the time of your passing and how you directed them to be distributed.  Also, all probate assets are subject to filing fees as well as a fee based on a percentage of probate assets.  For these reasons alone, most individuals would rather avoid probate if possible.

Can you escape probate?

The short answer is yes.  The most common way to avoid probate is to re-title probate assets to make them non-probate assets.  Some of the various ways to title accounts to avoid probate are as follows: transfer on death accounts (TODs), payable on death accounts (PODs), joint tenant accounts with right of survivorship (JTROS), and accounts with beneficiary designations.  TODs and PODs occur when one or more individuals are on the account and ask for the specific designation.  When a decedent passes away the account will automatically revert to one or more individuals who are listed as the designee to receive the funds.  JTROS accounts list two or more individuals on the account with the magic words “joint tenants with right of survivorship.”   Additionally, one can form a revocable trust and re-title assets in the name of the trust to avoid probate.  However, by re-titling assets to avoid probate, one may contradict his or her own estate planning documents.

So why is my neighbor wrong?

First, please let me say that the implication behind this blog is not to imply that anyone is wrong.  The point of this blog is to point out a major possible mistake that may be made with respect to accounts listed in the paragraph above.  These types of accounts that are truly non-probate assets trumps the designations made in a will or trust.  As such, the will does not control.  What I have seen all too often is that a husband names his wife the sole beneficiary of his life insurance policies.  

For example, suppose Alan lists his son Bob as a POD beneficiary for all of his bank accounts and brokerage accounts because his neighbor told him he needed to avoid probate and that was the proper way to do so.  However, lately Alan has been impressed with his grandson Carl’s scholastic achievements and wants to provide something special for Carl.  Alan calls his estate planning attorney and says he wants to amend his will to leave $50,000 to Carl with the remainder passing to Bob.  The estate planning attorney happily makes the change and Alan executes the will.

Alan passes away a few weeks later and when the will is revealed, Carl sees that he is entitled to $50,000 which he could really use for graduate school.  However, upon further review, it is discovered that all of Alan’s assets were non-probate assets.  Thus, there are no funds available to satisfy Alan’s bequest to Carl in his will. Now Carl has to find other funds for grad school.

The Lesson

As you can see from the above example, the moral of the story is to make sure your estate planning attorney not only knows your assets but also how they are titled so that the “Carl and Alan” situation can be avoided.  Fear not though, there are various ways to avoid probate and achieve all of your wishes.