Episode 3: What You Have to Do to Avoid Probate
Posted on Mon May 23, 2022, on Klenk Law Podcast
What You Have to Do to Avoid Probate According to an Experienced Probate Lawyer
Hey, folks, it’s Peter Klenk, New Jersey and Pennsylvania trusts and estates attorney here to talk a little bit more about well, death, and taxes. Today’s subject is about avoiding probate a topic that I hear people talk about a lot. So, let’s talk about that. So, first, to start, people often talk about avoiding probate, but to tell you truth, a lot of people don’t even know what probate really is. They just know it sounds scary. Sounds like a lot of government work and paperwork, and maybe taxes and things. So, let’s clarify that so we’re all talking about the same thing.
What is Probate?
What is probate? Now, remember, everybody dies, folks, they always have and always will, in every country, every culture, in religions there are ways of dividing up the stuff that’s left behind, because “guess what?!”, you can take it with you, right? So, what do we do with this stuff? Whether it’s, you know, your spear and shield, and fishing pole? Or is it your vast fortune? Who gets that? And how do we make sure that all of your debts and whatnot are taken care of before they’re distributed out? Well, that process is probate.
Again, every country may call it something else, but it’s the idea of making sure that all the things that are left behind end up with the right person, or people. Now, the right person might be a creditor, or the IRS, might be your wife, or your husband, might be your kids. Who know? But that’s the idea. You don’t want everybody showing up at the house right after the funeral and having a big bloodbath over the stuff. Right? So, probate is the government’s way of making sure there’s an order to this system.
The Probate Process is Much More Complex in Some States
Now, in some places, it’s pretty complex. And I’ll let you know it’s renowned. There are three states in the United States where probate is known to be difficult and expensive. That’s New York, Florida, and California. Pretty much all the other states, though, guys, it’s not that bad. It really isn’t. It’s just a system to put true to make sure, again, that that there’s some order to the system, that creditors are taken care of that spouses and children get what they’re supposed to get.
Now, Pennsylvania, New Jersey, are really straightforward, guys, I mean, the fees are low, and the process is pretty straightforward. The people who work at the surrogate’s office in New Jersey, because that’s where probate is done in New Jersey, are super nice. People who work in the Register of Wills offices in the Commonwealth of Pennsylvania, super-nice, very helpful. The fees are low. And in general, why? Well, in both states, they have some taxes. If you live in New Jersey, you know about taxes. If you live in Pennsylvania, well, actually, taxes aren’t that bad, but they do have a Pennsylvania inheritance tax. So, the Commonwealth when you die gets a little little bit exit on you a little bit exit money off you. So they don’t really need to squeeze you in the probate process and charge you a lot of fees. New Jersey, I think we’d like to think of it is that they tax the heck out of you while you’re alive so they just don’t feel like taxing you when you die. They make it pretty straightforward. And both officers are elected. The people are, again, I’ve never really run into anybody who wasn’t just a very competent human being running these offices. And there are, again, very helpful. So avoiding probate…. Well, California, New York, Florida. Yeah, yeah. You should really investigate that.
Pennsylvania, New Jersey, eh, you can avoid probate, but don’t make it your top priority. There are other important things to do in the process before you get there.
How Can You Avoid Probate?
Now, there are many ways that you can avoid probate because remember, the probate process is about making sure that things that pass through your will go to where they’re supposed to go. Now, what goes through your will? Well, if you die owning a piece of real estate in your name that will go through your will or to be clear if you don’t have a will, somebody’s appointed, and this person is called the administrator. So it’s an administration. The will, of course, you get decide where things go, because you wrote the will, the administrator is somebody appointed through a process to make sure that your assets are divided up under what the law says. And there’s a little segue here, folks, but everybody says… “Well, if I don’t have a will, and I let it go there, it’s going to the state.” Probably not. There’s a very detailed set of rules in every state that if somebody doesn’t do their chores and doesn’t have a will things are outlined where they should go. It might not be where you wanted it to go, but there is way of finding somebody all the way out usually to about third cousins. So, is it possible you don’t have third cousins out there and it’s gonna go the state? Well, yeah, but you probably do. They might not know you, but they exist, we probably can find them.
So, how do you avoid probate? Well, there’s ways… You could go to the bank and you could make things transfer on death (it’s called TOD), meaning that when you die, you name the person who’s going to get it. So, they just go in with the death certificate. When you die, they collect the asset. Now, folks, this doesn’t avoid creditors, it doesn’t avoid taxes, it just means we’re avoiding the probate process, right? You’re passing it through away upon transfer on death.
If you die owing somebody money, they still can collect this money, your creditor. Another way of avoiding probate is making assets joint. And jointly with the right of survivorship or in Pennsylvania and New Jersey, we have tenants by the entireties. So again, very convenient, you’re both deemed to own half the property, when you do this, you put this property in the joint names. And then it’s a contract between you and the other person, one of you dies, well, then the survivor can claim the ownership and take it. They don’t need to go through your will. In fact, it trumps your will. So, for example, if you had a house that you own jointly with the right of survivorship with your sister, and you died, even if your will says “I give my house to the Humane Society,” well, your sister gets it because the contract trumps what your will says. The contract was joint with your sister, you die she has the right to claim. It’s now hers, right? So, these things transfer upon death.
Now, I’m giving you jointly owned property, these things trump, and that’s why they don’t these assets, don’t go through the probate process. Now, another way is naming a beneficiary as you do with life insurance or your IRA – you’d name a beneficiary, that’s the person who gets the asset when you die. The only way those assets end up as part of your estate and go into your probate is if you fail to name a beneficiary. So, as you’re listening to this, maybe think about it, you have a life insurance policy out there that you named your mom as beneficiary, but she’s died since then? Well, since she died before you that means you don’t really have a beneficiary. So, it will go through your will. So, you might want to update those. Same with your IRAs, annuities… these are all examples of things that you’d have a beneficiary for.
Using a Trust to Avoid Probate
Now, another way, and this is what typically comes up, is a revocable living trust, or a “revocable trust.” This is a trust that you formed during your lifetime. It can own things, you manage it, you can take things in and out because it’s revocable. The key to understanding this is that the trust owns the asset, not you, you’re the beneficiary, you can always take it back, but you don’t own it. When you die, the revocable trust takes the place of the will. It says during your lifetime, you’re the beneficiary and you can manage it and enjoy the assets in the trust, but at death, it goes to your sister. Let’s say we don’t need a will anymore. It replaces the will. It avoids the trip to the courthouse, the registered surrogates to file the will does not avoid taxes, guys, don’t anybody tell you it does because it doesn’t avoid creditors, doesn’t avoid your spouse’s claims, and things like that. However, it does avoid the probate process.
Now, think about all these things and ask, “is it useful?” Well, it depends on your circumstances – might be wonderful! It might be a great way for people to come and get things right after you die and make things simpler. But, for example, let’s say you have young children or children married to somebody you think is a little shady, well, these steps might not be the best for you. Because when you die, these assets go right to your child in this example, which means that they’re available to their creditors and spouses.
You might in your estate plan, want to use a trust for them, and that trust is typically in the will. You trust under the will you’d say “when I die, I want this trust to come into place. I want the assets to go into it so that they’re there to take care of my child, but my shifty son-in-law can get them.” So, you don’t want to avoid probate in that case, because avoiding probate means that you’ve, yes, avoided a short trip and maybe a $60 filing fee with the register or the surrogate, but now the assets are available to your child’s creditors and spouse. It all depends on your circumstances. They are all possibilities. They are all arrows in your quiver, so to speak. But what you really need to do is to think about what’s best for you and what’s best for your family.
Wondering What Steps to Take Next? Contact Us
Now, a way to do that is to brainstorm with your trusted estate planning lawyer. If you’re in Pennsylvania, New Jersey, you want to do that with me. Give me a ring we’ll talk we’ll come up with what is a good fit for you. If you’re in another state, well contact your trusted estate lawyer there and see what’s a good fit for you. Remember, what’s a good thing for your family might not be the same for another – everybody has different set of circumstances, but these tools can be used in different ways to fit your circumstance.