Efforts to Avoid Probate Can Cause Unintended Consequences (Part 2)

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. The efforts that are made when trying to avoid probate are sometimes 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. Through this process, the court ensures that creditors and taxes owed by the decedent are addressed.

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

Trusts Require Proper Funding

Even when assets are not subject to probate, some administration is still required. Many people assume that having a trust eliminates all administrative work and expense. In reality, trustees must still fulfill fiduciary duties and properly manage trust assets.

A trust only avoids probate if all assets that would otherwise be subject to probate are properly transferred into the trust. If assets remain outside the trust, probate may still be required to move those assets into it—undermining the effectiveness of the trust strategy.

Account Titling Must Be Carefully Planned

In some cases, probate can be avoided without a trust by properly titling accounts. Pay-on-death designations are one example. However, these strategies are not without risk.

If a named beneficiary dies before the account owner, the financial institution’s contract will determine who receives the assets. These default provisions may not reflect the original intent of the owner.

Joint Ownership Can Expose Assets

Joint ownership is often used as a quick way to avoid probate, but it can create unintended exposure. Relationships change, and jointly held assets may become vulnerable to issues such as divorce, lawsuits, creditor claims, or bankruptcy involving the joint owner.

Even when there is no ill intent, the risks associated with joint ownership can significantly impact asset protection.

Family Disputes and Unequal Outcomes

Probate avoidance strategies that do not involve trusts can lead to disputes among family members. Without a clear structure, there may be no designated funds to cover final expenses such as funeral costs, leading to unequal financial burdens among children.

A common mistake is adding one child to an account for convenience. Upon death, that child becomes the sole owner of the account funds, with no legal obligation to distribute them to siblings. If the child chooses to share the funds, those transfers may be treated as taxable gifts.

Align Your Plan With Your Intentions

Asset titling decisions are often made in isolation, without considering the full estate planning picture. This can create inconsistencies between legal documents and how assets actually transfer at death.

Regularly reviewing your asset structure in coordination with estate planning and life care planning ensures your plan continues to reflect your goals and protect your family.

Plan Smarter, Not Just Faster

Avoiding probate is not always the ultimate goal. The focus should be on creating a plan that balances efficiency, protection, and clarity for your loved ones.

If you would like to examine your financial situation regarding probate and inheritance planning, contact Burzynski Elder Law. Call (239) 434-8557 to schedule a consultation.

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