Probate Is Not Inevitable: Common Avoidance Mechanisms
Each and every one of us is likely to leave something behind upon our death. Whether your estate is valued in the tens of millions or the tens of thousands, you should be concerned how your hard-earned assets will be distributed. The simple solution is through the careful drafting of an estate plan which clearly states how you wish your assets to be divided and distributed. However, the use of a traditional will subjects your estate to formal probate procedures governed by the Wisconsin statutes. Probate is a process of judicial oversight that is time-consuming, costly, and open to public inspection.
Fortunately, the headaches, costs, and delays associated with the probate process are not inevitable; in fact, in most cases, probate is entirely avoidable through a carefully designed and executed estate plan. Here are just a few of the many tools available to Wisconsin decedents for probate avoidance:
1) Transfer by Affidavit
Estates having less than $50,000.00 in what would otherwise be considered probate assets, such as solely titled real estate, individual bank accounts, cash-on-hand, and personal property, can avoid probate altogether by means of an Affidavit of Transfer. This is a post-death transfer that may be executed by the rightful heir(s) to the property. A Transfer by Affidavit is done by filing standard Form PR-1831 with the Department of Health and Family Services, and, with respect to real property, the local Register of Deeds.
2) Transfer on Death (TOD) Real Estate Deeds
Real property that is placed in “transfer on death” status automatically passes upon the death of the owner to the designated grantees named on the deed. A transfer on death deed is executed during the owner’s lifetime and must be recorded with the Register of Deeds. Transfer on Death deeds may be revoked or amended at any time during the owner’s life simply by executing a new deed. The owner retains all rights to the property until his or her death, including, but not limited to, responsibility for property taxes and utilities payments, the right to encumber the property by mortgage, and the right to sell the property and effectively disinherit the named grantees. Transfer on Death deeds are exempt from traditional real estate transfer taxes of 3/10 of 1% of the property’s value.
3) Payable on Death (POD) Accounts
Bank accounts and brokerage accounts can be re-titled in “Owner’s Name, Payable on Death to Owner’s Designated Beneficiary.” By titling your financial accounts as such, they will be immediately payable to your designated beneficiary or beneficiaries upon your death, outside of probate. Be sure to update your beneficiary as your life circumstances change (i.e. divorce, predeceased spouse/children, estranged children), to conform to your overall estate plan. It is also important to keep in mind that naming a minor beneficiary often requires the establishment of a formal guardianship in order to complete the transfer at death.
4) Joint Tenancy
Assets which are owned under a document of title may be titled with several owners as joint tenants. The surviving joint tenant(s), upon the death of another joint tenant, become the owner of the asset as survivor by operation of law.
5) Inherently Non-Probate Assets
Life insurance proceeds, 401(k)’s, IRA’s, pension plans, and other retirement accounts are inherently non-probate assets that automatically pass to the beneficiaries named on the account or policy, so long as the named beneficiary is still living. If your named beneficiary is no longer alive, and you did not name a secondary beneficiary or your secondary beneficiary is also deceased, then the proceeds lapse into probate. Again, it is essential to be mindful of your beneficiary designations and the possible need for a formal guardianship for minor beneficiaries.
6) Irrevocable Life Insurance Trusts
The owner of the life insurance transfers the policies to a Trustee who is thereafter responsible to make the premium payments funded by the insured. The Trustee is both the beneficiary of the policy and the owner of the policy. Upon the death of the insured, the policy proceeds pass to the Trustee and are disbursed according to the terms of the trust document. This technique was much more common years ago when federal taxable estate limits were much lower. The federal government has now increased the taxable estate limit to over $5 million per individual. However, many insureds may still wish to use this mechanism to control precisely how and when the proceeds are to be disbursed to beneficiaries, especially if any of the beneficiaries are spendthrifts.
7) Revocable Living Trusts
The Revocable Living Trust is beginning to overtake the last will and testament in popularity among estate planners. All of the individual’s assets are put into the trust during the Settlor’s lifetime. The Settlor maintains management and control of the assets during his or her lifetime so long as physically and mentally capable of doing so. Upon the Settlor’s death or incapacity, management and control of the trust passes to the named Trustee. We highly recommend naming a corporate Trustee rather than an individual for their expertise and recourse in the event of a problem. Trustees are entitled to a 2% fee for their services. A Trustee must be scrupulously honest, unbiased, and a wise investor—all of which may present a challenge to an individual prone to everyday stupidity and dishonesty. Upon the death of the Settlor, the Trustee makes disbursements to the beneficiaries according to the Settlor’s distribution plan as set forth in the trust document. A Trust can remain in effect long after the death of the Settlor depending on the amount of assets and the needs of the beneficiaries.
In order to avoid probate altogether, all of your assets must be disposed of in a non-probate fashion. This is accomplished through careful the planning and drafting of a comprehensive and interrelated estate plan. To ensure that your assets will not be subject to the public, costly and time consuming probate process, it is absolutely essential that you consult with a qualified attorney. The probate avoidance mechanisms described above have many requirements, nuances, and exceptions, and should only be drafted by licensed legal practitioners. John M. Kelly, Attorney at Law, LLC is home to over 43 years of experience in drafting comprehensive estate plans to help clients avoid probate. Call today to get your estate plan underway.