Probate avoidance, or reducing the necessity to have your estate administered in the probate court, is a small part of estate administration. This article will address some of the major misconceptions about estate planning and, in particular, avoiding probate.
Misconceptions of Probate Avoidance
“If I avoid probate, I will not have any expenses when I die.”
FALSE - As discussed below, you will still have Estate settlement expenses. In essence, your nominated personal representative will have to ensure your assets pass pursuant to your wishes, pay all outstanding bills and expenses, file all necessary tax returns, and clear title to any real estate (particularly, Florida homestead).
“If I add beneficiaries to all of my financial accounts, I will not have to hire an attorney to settle my estate.”
NOT ALWAYS TRUE - If you own a primary home in Florida, referred to as a homestead, you will have to update the title to the homestead property through the probate court. If you have any debt (creditors), someone will have to deal with these obligations (typically handled by an attorney via a probate process to determine their validity).
“If I sign a revocable trust, I will avoid probate.”
PARTIALLY TRUE - The mere act of executing a revocable trust is only half the battle; you must either fund your trust (retitle your assets to be owned by your trust) or have a beneficiary designation on your assets to move your assets into your trust upon your death. Otherwise, a probate will be necessary to move the assets pursuant to your “pour-over” Will into your trust upon your death. In some circumstances, even if a residence is titled to a revocable trust at death, a homestead proceeding is still required to clear the title to the residence.
“If I hold all my assets in joint name with my spouse, I will avoid probate and ensure my assets pass according to my wishes.”
PARTIALLY TRUE - This may avoid probate on the first death, but you will rely 100 percent on your surviving spouse to decide where the assets pass upon the surviving spouse’s death. Your Will and/or revocable trust will be irrelevant to the disposition of those assets upon the death of your surviving spouse.
“If my spouse and I have mirror image estate planning documents, my wishes will be followed upon my spouse’s death.”
FALSE - Your spouse’s documents, which he or she is free to change after your death, control everything that is not funded into your trust. All joint assets and all beneficiary-designated assets payable upon death to your spouse will pass directly to your spouse, and your documents will be irrelevant. In a first marriage of a long duration with the same heirs, this may be desired. However, in a short-term marriage or in a marriage where you have children from a prior marriage, it is essential that you fund your trust (to ensure your assets pass pursuant to your wishes outlined in your trust).
“If I specifically identify who gets each of my assets, I will save aggravation and avoid a great deal of time and costs upon my death.”
RARELY TRUE - This is rarely the case and often creates much bigger problems. Specific gifts spelled out in your Will or revocable trust can be a big problem - for example, you designate Mary to receive one of your brokerage accounts and then, near your demise, you sell off the assets in that particular account to pay for the high costs of your home health care - Mary may end up with nothing. This was most likely not your intention. It is better to simply state who will receive your estate after all expenses and liabilities are satisfied. Also, specifically devising property rather than making residuary gifts may have adverse tax consequences for your estate or trust.
“If I have a revocable trust that specifically gifts every asset, it will override how my assets are titled.”
FALSE - The exact beneficiary designations on your assets will override your wishes as set forth in your Will and revocable trust. Therefore, funding your trust is essential.
What steps are still necessary if I avoid probate?
Even if you avoid probate, you still have many steps to complete your estate plan upon your death. This is referred to as estate settlement. Your fiduciary (nominated personal representative under your Will or successor trustee under your revocable trust) still has to do the following steps:
Your fiduciary still needs to hire an attorney, an accountant, and one or more financial advisors to assist in the post-death activities;
Your fiduciary still has to make sure the assets of your estate pass pursuant to your wishes;
Your fiduciary still has to comply with your wishes;
Your fiduciary still has to oversee the disposition of tangible personal property; and
- Your fiduciary must attend to your final, personal income tax return, income tax returns for your estate and trust, and potentially an estate tax return if the size of the estate requires it or if doing so would be advantageous to your surviving spouse.
The above is a partial list - there are many more activities that must be undertaken by your fiduciary such as changing the locks to your home, emptying the contents of your home, listing and selling your real estate, turning off utilities, and so much more.
In conclusion, the correct goal should be to design a smooth estate administration and save death costs and taxes (not to avoid probate at all costs).