Avoiding Probate and Intestacy

Implementing a few planning techniques can prevent judicial administration during estate settlement.  One egregious mistake is dying without a Will.  The estate will be subjected to the statutes of intestacy, and as a consequence, beneficiaries must inherit assets via a prescribed formula that may not coincide with the owner's wishes.  In contrast, a Will defines the intended beneficiaries, but is the inherent document used in the probate process.  Estate owners can avoid the courts altogether by establishing contracts with designated beneficiaries, assigning heirs though operation of law, or by making lifetime gifts.   

Using Contracts  

There are several types of contracts where donors can pass estate assets to beneficiaries without judicial administration:  individual retirement accounts, life insurance contracts, qualified retirement plans 401(k)s, annuities, or any other security registered in beneficiary form.  An owner and a designated beneficiary are inherent within the contract, and the instructions specifically spell out the desires of the decedent.  The assets transfer, as prescribed, without being subject to probate or the intestacy statutes.
 

Operation of Law

An owner can convey estate property without probate by titling assets as Joint tenants with rights of survivorship, and tenancy by the entirety.  Tenancy by the entirety is only available to spouses.  Tenants in common is not similar.  The decedent's ownership portion of a tenants in common provision is part of his or her estate, and subject to probate.  Another example of passing assets by the operation of law is the titling of bank accounts, and brokerage accounts, as Payable on Death (POD) or Transfer on Death (TOD), known as a Totten Trust.  Once again, a grantor, or settlor, designates a beneficiary who receives the asset without judicial involvement. 

Lifetime Gifts

Gifting to heirs, or to the beneficiaries of a trust, removes those assets from one's estate.  The formal document, a "trust deed" establishes the grantor, trustee, and the beneficiary as per the wishes of the decedent.  Common forms of trust documents are irrevocable trusts. They are unalterable once established by the grantor.  The grantor accepts diminished control of the asset in exchange for an added benefit.  The estate is now void of that asset and is eligible for tax benefits.  In contrast, revocable trusts are alterable during life (inter-vivo trust), and revocable by the grantor.  Because of this flexibility, revocable trust assets are part of the grantor's estate and do not offer estate tax benefits.  In either case, probate is no longer part of the asset transfer.    
 

Probate assets (possibly subject to state intestacy statutes):
A residence held as tenants in common with spouse
Personal property owned by the decedent
A car registered in husband's name
Accounts with "estate" as a designated beneficiary
 

Non-probate assets:
Joint checking account with rights of survivorship
Life insurance on decedent's life payable to spouse
Security registered in beneficiary form
Qualified retirement plan
A car registered/titled to a decedent and spouse
Real estate owned by a decedent and other person
Accounts owned by decedent and titled "in trust for" someone else
Assets held in revocable and irrevocable trust assets
Payable on death (POD) accounts
Transfer on death (TOD) accounts
Individual retirement accounts
Qualified retirement accounts - 401(k)s, employer sponsored savings plans
Life insurance contracts