Frequently clients want to know how to Avoid Probate. Avoiding probate can save large sums of money, reduce the administrative time (headache), and maintain privacy.
Probate is the legal process through which the estate of the deceased is administered. Probation can be costly. In addition to attorney's fees, the personal representative (e.g. the individual named in the will as the “executor” of the estate) can receive up to 5% of the estate, after debts are satisfied -this can be a huge sum of money.
The probate process can be lengthy and involves making many filings with the court. The court filings are public record, so anyone can see the documents. The process is long (regularly lasting over a year) because all the assets from the estate have to be distributed before the estate can legally be closed. So, the personal representative needs to be prepared to do a lot of work to help the attorney administer the estate. And the heirs often have to practice great patience in awaiting distributions.
There are many different ways to avoid probate. Trusts are commonly used. A trust is a flexible arrangement involving the settlor (i.e. the person forming the trust), a third-party trustee (i.e. the individual responsible for administering the trust), and beneficiaries (i.e. the recipients of the trust). Assets in trust pass outside of probate because the assets are no longer in the individual's estate – this is because the assets are now held in the trust. Real estate and personal property can both be placed in a trust.
Payable-on-death bank accounts are a common and easy way to bypass probate. The named individual gains access to the account upon the passing of the owner. The assets then belong to the named individual and pass outside of probate.
Real estate can pass outside of probate without even using a trust. In North Carolina, married couples buying a home take title as tenancy by the entirety. Joint tenancy with a right of survivorship is available to non-married couples that own property together. Both operate in a similar manner, passing the deceased's property interest to the surviving owner at the moment of death. Probate is not needed since the property does not stay in the deceased's estate.
Limited Liability Companies (LLCs) can own property and can be used to avoid probate. Similar to trust, the LLC owns the property, so upon the death of the individual, the LLC could remain operational. LLCs have a lot of freedom, so the operating agreement (i.e. the agreement that sets forth the rules for the LLC) could be drafted to pass the deceased person's interest to someone even outside of the LLC.
Probate can be expensive, costly, and take a long time. By using trust and proper planning, lots of money can be saved and efficiency can be increased.