Efforts to Avoid Probate Can Cause Unintended Consequences

Many people believe that probate is something that should be avoided in all cases. When asked why probate should be avoided, people often express that probate will be a very expensive and time-consuming process. These perceptions are not necessarily true. In some situations, the efforts made to avoid probate can end up being more costly than if there had actually been a probate administration.

Probate is the process whereby assets that were held in a decedent’s name alone are passed to beneficiaries if there is a will, or to heirs if there is not a will. Through the probate process, the court helps ensure that creditors and taxes owed by the decedent are properly addressed.

Assets that are not held in a decedent’s name alone are generally not subject to probate. These may include jointly held assets, assets with beneficiary designations, assets with pay-on-death designations, and assets held in trust.

Trusts Do Not Eliminate All Administration

Even when assets are not subject to probate, some administration is still required for non-probate assets, including assets held in trust. Many people believe that if they have a trust, it will completely eliminate all administrative expenses. That is not necessarily the case.

Certain steps must still be taken to administer a trust, and the trustee must ensure that he or she is meeting the legal obligations of serving as a fiduciary. A trust will only avoid probate if all assets that could otherwise be subject to probate are actually titled in the trust.

If assets are held outside of the trust, a probate administration may still be necessary in order to transfer those assets into the trust. In that situation, holding assets outside the trust can undermine the very purpose of using the trust as a probate-avoidance tool.

Pay-on-Death Accounts Can Create Problems

Depending on a person’s circumstances, it may be possible to avoid probate without a trust by carefully considering how accounts are titled. For example, someone with only one or two intended beneficiaries may establish a pay-on-death account to avoid probate.

However, problems can arise if one of those beneficiaries dies before the account owner. In that case, the contractual provisions with the financial institution will control who ultimately receives the assets. Those contractual terms may or may not reflect the asset owner’s actual wishes.

Joint Ownership Can Be Risky

Avoiding probate through joint ownership can be particularly risky. Relationships can change over time, and when they do, jointly held funds may be exposed to unintended consequences.

Even if the joint owner has no bad intentions, the assets can still be put at risk if that person later faces divorce, creditor issues, lawsuits, or bankruptcy. What may have seemed like a convenient planning shortcut can create serious exposure for the original owner.

Probate Avoidance Can Lead to Family Conflict

Probate avoidance strategies that do not involve a trust can sometimes lead to family disputes because no dedicated fund has been set aside to pay expenses such as funeral costs or final bills. In some families, children may end up contributing unequally toward those expenses.

Sometimes a parent adds one child to an account believing this will simply allow that child to pay bills before and after death. What many people do not realize is that the child added to the account will automatically receive all remaining funds in that account upon death.

That child has no legal obligation to divide those funds among siblings. If the child later shares the money based on the parent’s wishes, those transfers may be treated as gifts, and gift tax rules and reporting limits may apply.

Asset Titling Should Match the Bigger Estate Plan

Decisions about how assets are titled are often made without considering the larger estate planning picture. That can result in conflicts between a person’s legal documents and the way their assets actually pass at death.

Periodically reviewing how assets are titled is essential to making sure your wishes are still properly reflected in your plan. In many cases, thoughtful estate planning and coordinated life care planning can help families avoid costly mistakes while preserving flexibility and clarity.

Review Your Plan Before Problems Arise

Probate is not always something to fear, and probate avoidance is not always something to pursue at all costs. The right approach depends on your family, your assets, and your long-term goals.

If you would like to examine your financial situation with regard to probate and inheritance issues, please call Burzynski Elder Law to schedule a conference. Call (239) 434-8557 to get started.

This article is for general informational purposes only and does not constitute legal advice.