Do Wills Always Have to Be Probated? (Hint: It Depends on an Estate's Assets)

Most people who undertake estate planning do so not only to ensure their beneficiaries will be provided for, but to prevent them from experiencing the frustration and emotionally difficult process of probate. Also known as the “probate process,” probate is a judicial process in which a court determines the validity of a last will and testament. It usually involves determining the distribution of property and assets; the dispersal of the property is supervised by a state's probate court for which wills are contested. This can differ by county and state. Some states have separate probate courts; others handle probate matters in district courts.

What Is Probate?

Probate can incur unforeseen fees and cause rifts among the beneficiary’s loved ones. A lengthy court process is usually the last hurdle a grieving group of people wishes to face while coming to terms with the death of their loved one, so ensuring that end of life documentation is legally valid is an important legacy, no matter how much or how little one has to pass on.

Fortunately, wills do not always have to face the probate process. As we will see, the procedure depends on what the assets of an estate are, and how the original owner has prepared the will.

Although the word “estate” can bring to mind grand mansions and heaps of money, the legal term “estate” simply refers to all that a person owns. That might include actual real estate, or it might simply involve money in a savings account and a few personal effects. Specifically, the term “estate” can also refer to any possessions which are subject to the probate process.

The grantor, or original owner, can avoid probate by taking care to pass on assets in several specific ways. In some cases, property is prohibited from entering probate at all.

Right of Survivorship

When two people own a property, right of survivorship ensures that if one owner dies, the other owner takes full control of it. Right of ownership applies mostly in the case of co-owned property by spouses or equally partnered small businesses. However, it can also exist among a group of people; everyone has an equal share.

Rights of survivorship is found in joint tenancy, which is a specific form of ownership. It legally designates the simultaneous ownership of property or assets. In this kind of ownership, the property is equally shared for the same amount of time. Titles reflect the names of both or all owners, and upon the death of one of the owners, the others only have to produce a valid death certificate in order to assume full ownership.

If the property is in the form of real estate, the co-owners may decide to sell it while all are still alive. In this case, the proceeds from the sale are split equally. One joint owner may also decide to sell his or her share to another person; in this case, the buyer then becomes a tenant in common, which is similar to joint ownership, but does not include right of survivorship. For obvious reasons, divorce can complicate joint tenancy, as a validly legal split usually cancels the right of survivorship.

Property With Designated Beneficiaries

A designated beneficiary is a person, group of people, or trust which will receive the balance of a life insurance policy, annuity plan, or retirement account (such as a 401k or IRA) in the event of the death of the account holder. This can include cash, annuities, stocks and bonds, or the money earned from selling these investments.

Choosing the designated beneficiaries is entirely up to the grantor. He or she can designate whoever he or she likes, and may name more than one person. If he or she would like a group of people to act as the designated beneficiary, the benefits do not have to be split equally. Certain percentages may be distributed however the grantor decides.

In order to prevent confusion if the grantor and beneficiary die together, or if the beneficiary dies before the grantor and the policy is not updated, the grantor may also choose secondary beneficiaries. Sometimes also called “contingent beneficiaries,” a secondary beneficiary is a person who will inherit in place of the designated beneficiary.

In the case of life insurance, managing companies usually ask the grantor to name a beneficiary when the policy is finalized. This means that all benefits of the account pass immediately to the named person or people. Since these benefits aren’t part of the grantor’s property at the time of his or her death, they are not considered part of the estate. Therefore, they cannot be probated.

Although grantors may leave money, property, or personal items to an organization (as in the case of a charity), that’s not the case for retirement accounts or life insurance benefits.

Revocable Living Trust

That which is passed on in a revocable living trust is also usually safe from probate. A revocable living trust is a legal entity which  “holds” property or assets for the grantor. The original owner controls, pays taxes on, and may sell the items in a revocable as normal. As the trust is revocable, the grantor is free to dissolve the trust if he or she chooses.

In the event the grantor is taken ill, a trustee may be appointed to act in his or her place to make decisions about the holdings of the trust. Once the original owner passes away, the trust becomes irrevocable—chances can no longer be made. Whoever has been named the successor trustee now takes control of the living trust, paying off debts and final expenses. The trustee must also distribute the assists of the fund as the grantor has decreed. Often the successor trustee and the primary beneficiary are the same person, but they do not have to be.

This process avoids probate because the grantor has already established a clear line of succession in ownership of contents of the trust.