Probate is the court process through which a Personal Representative is appointed to administer the estate and ultimately transfer the decedent’s assets to his or her heirs or beneficiaries. The quickest way to understand how to avoid probate, is to first know when it is required. A common myth is that if you have a Will no probate is required and/or your nominated Personal Representative will have automatic authority to act. This is not true. The named Personal Representative has no authority to act unless the Court issues “Letters” via a probate proceeding. Additionally, whether a probate is necessary depends upon the value and nature of ownership of assets at time of the decedent’s death. In Arizona, if an individual dies with more than $100,000 in equity in real property or more than $75,000 combined in all other personal property (e.g., checking, savings, investment accounts, insurance proceeds paid to the estate, vehicles) in his or her name alone (with no joint owner or beneficiary designation), a probate proceeding will be required.
What if the estate assets are smaller? Both personal and real property can be transferred directly to the heirs or beneficiaries of a decedent’s estate by Affidavit, but no sooner than thirty (30) days after date of death in the case of personal property or not for six (6) months after date of death in the case of real property, without the need for probate or the appointment of a Personal Representative. In many instances, collection by affidavit is not ideal give the time delays and cooperation required of all heirs or beneficiaries in paying valid debts and expenses of the estate.
So, how can you designate your assets to avoid probate? There are three ways to avoid probate:
- Establish and Fund a Revocable Trust. This is the best option for most individuals. By using a revocable trust, you can maintain control and beneficial interest over your assets during lifetime and also transfer assets to the beneficiaries without court involvement after your death. Depending upon family dynamics and tax issues, this is often the ideal solution to avoid probate.
- Title property with Rights of Survivorship. There are two forms of ownership with rights of survivorship: 1) joint tenants with right of survivorship; and (2) community property with rights of survivorship. Joint tenants is available to anyone, whereas community property is only available to spouses. Each party owns an equal an undivided present right or interest in the property, whether it is real property or a bank account. Upon the death of one of the joint owners, the deceased owner’s share automatically passes to the surviving party and is not subject to transfer by probate. Unless you intend to actually convey a present interest to a co-owner, we do not recommend use of rights of survivorship. By adding a co-owner the asset may be subjected to their creditors, among other potential risks. In addition, with regard to assets with a cost basis (such as real property or stocks) there can be extra and otherwise unnecessary capital gains tax incurred by the surviving owner.
- Make accounts Transfer on Death (TOD) or Payable on Death (POD). TOD or POD designations are allowed on various assets including but not limited to bank accounts, brokerage accounts, real property, and vehicles. In order to add a beneficiary designation to a bank or brokerage account you need to visit your bank or financial institution and complete a POD/TOD designation form. Each financial institution will have its own separate form. Arizona Motor Vehicle Division has a beneficiary designation form which will transfer title to your designated beneficiary upon your death. Finally, Arizona permits the recording of Beneficiary Deeds which allows for the transfers of title to real property upon the death of the owner.
On the POD/TOD designation form, you designate your beneficiary or beneficiaries and what share, or percentage, you want each beneficiary to receive. In most cases you will be able to name secondary beneficiaries in the event your primary beneficiary predeceases you. You can name an individual, multiple individuals, your trust, a company, or a charitable organization as your beneficiary. The named beneficiary will be legally entitled to access the asset within the account upon your death and the asset should not be subject to probate.
However you choose to set up your estate plan to avoid probate, it needs to be thorough and complete. Please contact one of our experienced estate planning attorneys at Bivens and Associates, PLLC to discuss your unique situation to understand and implement the best legal solutions to achieve your goals and objectives.
-Stephanie A. Bivens, CELA, Esq.