In planning your estate or administering someone else’s, you will benefit from knowing when you can and can’t avoid probate. Even if there is a valid will, an estate may still have to go through the probate process.
So when is probate not necessary? Two things determine whether an estate needs to go through probate: the type of assets in it and its total value. We explain both below.
How Does Probate Work?
Probate is the legal process for distribution of a person’s assets after they die. The deceased’s estate is settled under the court’s supervision. If they left no valid will behind, the court will appoint a surviving spouse or adult relative as an executor of the estate. If there is a valid will, it will nominate the executor. The executor has the legal authority to collect, appraise, and distribute the estate’s assets to heirs and beneficiaries.
Probate exists to prevent fraud after someone dies. It puts the estate on hold until a judge determines that assets can be distributed. The court makes sure that the:
- will is valid,
- notification is sent,
- property is appraised, and
- debts and taxes are paid.
Once assets are rightly distributed, the court can close the estate.
Distributing property through probate is more timely, costly, and complex than passing assets outside of probate. Property that does not need to go through probate can be transferred much more quickly and simply.
As someone planning or executing an estate, you may not want to put yourself of your loved ones through probate. So, what types of property and estate size do not need to go through the arduous process of probate?
What Kinds of Assets Avoid Probate?
Probate is necessary only for certain types of assets. It necessary for property owned solely in one person’s name. It is also necessary for shares of property owned as “Tenants In Common”. An example is a person’s share of an apartment complex that they own with their siblings.
Other types of assets can be distributed outside of probate. These generally fall into three categories:
- Jointly-Owned Property. Real estate and other assets owned jointly that transfer to surviving owners after the death of another owner avoid probate. This is typically property that
married couples own, which transfers to one spouse after the other dies. It includes property owned in “Tenancy By the Entirety”, “Joint Tenancy”, and “Community Property” with right of survivorship. - Accounts With a Designated Beneficiary. Retirement accounts and life insurance policies with named beneficiaries also do not need to go through probate. The beneficiaries are entitled to the assets immediately upon the death of the account or policy holder. Similarly, payable-on-death (POD) bank accounts and investments or property registered with a transfer on death (TOD) beneficiary avoid probate. Naming a beneficiary to your accounts or property requires filling out a form.
- Trusts. You can design assets to avoid probate by holding them in a trust created during your lifetime. A trust creator can chance or cancel “Revocable Trusts” during the trust creator’s lifetime. You cannot modify “Irrevocable Trusts” once made. “Charitable Trusts” provide a level of income to the trust maker or beneficiary with the rest going to charity.
What Value of Property Avoids Probate?
You can also avoid probate if the value of property in the estate makes it a “Small Estate”. In California, small estates are those with individually-owned property without a named beneficiary valued at $150,000 or less. Jointly-owned assets, accounts with designated beneficiaries, and trusts don’t count towards this limit.
Small estates will still be subject to probate, but through a simplified “Summary Probate” proceeding. Summary probate allows heirs and beneficiaries to obtain title or possession of estate property shortly after an initial 40-day waiting period. They can complete this version of probate with minimal court supervision using fill-in-the-blank forms from the court.
What Can You Do to Avoid Probate?
Probate can cost you and your heirs and beneficiaries precious time and money. It can also be source of avoidable frustration. If you are an executor of an estate, you can minimize your stress with a small estate or certain assets.