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How Small Estates Can Bypass Probate

Troy Werner and his family

Written by Troy Werner

Troy Werner has been an indispensable asset to The Werner Law Firm since joining in 2009, providing exceptional legal service to its clients.

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POSTED ON: March 18, 2019

It’s easy to assume that people with small estates can skip thinking about end of life documentation or estate planning. After all, if you do not have millions to disburse, why bother? However, any person with even the most minor collection of possessions has an estate at his or her disposal; if you have a […]

It’s easy to assume that people with small estates can skip thinking about end of life documentation or estate planning. After all, if you do not have millions to disburse, why bother? However, any person with even the most minor collection of possessions has an estate at his or her disposal; if you have a bank account in your name holding a single dollar, you have an estate.

Of course, most people fall between that single dollar and the concerns of those with billions to their name. If you have a car, a savings account, and a few sentimental personal items, it’s wise to consider who you might like to leave them to - a person, group of people, or a charity are all options. It is worth the time and effort to establish an estate plan for your loved ones. No matter how large or small your estate, it makes financial and legal sense to protect it.

What Is Probate?

Most are aware that dying without leaving a last will and testament is a quick route to the probate process. Probate is the legal procedure by which a person’s assets are taken over by a district court and distributed according to the laws of the state. Some states have individual probate courts, while others fall under the jurisdiction of a state court.

This process can be drawn out and expensive… and it comes just at a time when people are grieving, overwhelmed, and ill prepared to take on an exhausting legal battle. But can people with small estates bypass probate? There are indeed several options for doing so.

Keep Estates Under State Minimums

In most states, the danger of an estate entering the probate process is lessened if its total value is under a certain threshold. This includes personal property and real estate held in the state of the person’s primary residence. In California, for example, this limit is under $150,000. Some might choose to distribute their assets to their descendants and favorite charities while they are still living. Others may be facing pressing debts or do not command the income to compile an estate of this magnitude. Some states include time limits after the person’s death to inherit small amounts without probate.

Since some might have concerns about the potential need for income to provide for future medical or elder care, this can seem like an odd option. However, others are determined to see their loved ones enjoy their possessions, inheritance, or real estate investments while still alive. They prefer to take the risk of not maintaining a large estate, and some underline this decision even more dramatically by leaving detailed medical directives to take no extraordinary means to keep them alive in the event of their incapacitation. Obviously, such decisions carry certain risks, and do not allow much room for savings in the event of an emergency.

Place Assets in a Trust

Some might be wary to undertake a “small estate lifestyle” if they have larger incomes, and have decided to undertake a “halfway” solution: Placing their assets in a trust. In most cases, trusts do not become subject to the probate process, and small estates can establish one just as efficiently as those with complex holdings. Since in most states they are not forced by law into registration with the court system, as last wills and testaments are, a trust is also more private than a simple will.

A trust is a legal entity which is established for the purpose of “holding” the assets of a person. Since the trust itself is not a person, funding a trust can have certain tax advantages, and the structure of most allow for the creators of them to live as they normally would, drawing money from the trust as needed. This is the outcome when the creator of the trust also acts as the trustee, or the person who manages the trust.

Some choose to place another person in charge of the trust. When the person who has established the trust passes away, a person appointed as the “successor trustee” takes charge of it. The successor trustee has responsibilities similar to that of the executor of a will: He or she sees to it that debts are paid out of the estate and ensures that all assets are distributed as the creator of the trust had wished. Once this takes place, the trust ceases to exist.

Trusts can be more complicated to legally establish than a traditional last will and testament. If you’re interested in placing your assets into a trust, a qualified legal professional and financial advisor can help you through the process of creating and funding one for you and your beneficiaries.

Consider Investments Not Under the Jurisdiction of Probate

Several traditional investments, in most states, cannot be touched by the probate process. That’s because they are not considered part of a person’s estate. These include life insurance and some forms of retirement accounts. Some property can be titled as “payable on death,” which means that the person who makes the original investment cannot collect the monetary payout - only the named beneficiary can. The contents of health savings accounts, annuity agreements, or IRAs, since they are furnished under a private contract, can transfer without probate.

Some families or business partners decide on “tenant in common” assets. These are investments, accounts, or holdings in which the title is established in the owner’s name, as well as the name of another person or group of people. They are considered as co-owners, each with a percentage of interest in the property. Many people at once can be included in a tenant in common agreement. When one of the owners dies, the ownership passes directly to a stated beneficiary.

Sometimes, these tenant in common agreements also include right of survivorship, which means that the money or physical asset automatically and immediately becomes the property of another owner. This arrangement is most common in marriages of amongst family members. Right of survivorship bypasses probate.

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