Avoiding Probate

 By Mark E. Henze


         There are a number of options that allow you to transfer property without having to go through a Court Probate. However, the first thing to decide is whether it is even worth trying to avoid probate. In Colorado, a Testate Probate (with a valid Will) is typically not as expensive as in other states. Yes, the Court will require the payment of court filing fees and the publication of a Notice to Creditors. However, this may be less expensive than the methods used to avoid probate in the first place. There may also be times when Court oversight of the estate is advisable. There may still be other times where probate avoidance techniques will simply not allow you the flexibility that is provided by a Will. Finally, the fact that you have dealt with one asset that doesn’t require probate doesn’t mean that a probate is not required to administer the remaining assets. We have seen hundreds of cases where one piece of property avoids probate, while another asset does not. In this case, a probate will still required.

        Yet, there are some benefits to avoiding probate. First, the asset may be transferred quickly, cheaply and without waiting for Court orders and the approval of a Court appointed Personal Representative. Second, probate cases are of public record. However, most property transfers (even if they avoid probate) are also of public record.

        Here are some effective methods of avoiding probate:

        

Gift the Property While Alive:

        Once good way to avoid probate is to simply gift the property to the intended beneficiary while you are alive. However, do be careful of gift tax issues if the gift is substantial.

        

Simplified or Small Estate Affidavit:

        In some cases, if the property of the estate does not consist of real estate and does not exceed a certain value, a very simplified form of probate can be used. Here, an heir can simply use an Affidavit to collect the assets and distribute them based the number of heirs (or their agreement). This avoids the cost of probate and can be very quick. However, this method may be fraught with peril to the person using the Affidavit if other heirs disagree with the disposition.

        

Joint Tenancy:

        A joint tenancy (Joint tenancy with right of survivorship or “JTROS”) allows people to share property equally. When one owner dies, the surviving co-owner(s) automatically inherits the property through the right of survivorship. Normally, all that is required is that a copy of a Death Certificate be recorded in the property records in the county where the real estate is situate. Yet, joint tenancy may also be fraught with peril as the joint tenant now becomes a true “owner” and the property becomes subject to the debts and liens of the co-owner. Additionally, the co-owner also has all of the legal rights of property ownership, including the right to mortgage his/her interest and the right to occupy the property. In addition, if there are more than two joint tenants, there may still be a need to later determine the ownership and rights held by each of the remaining joint tenants (survivors). Finally, be sure to understand the difference between joint tenancy and tenancy in common. If the property is owned in tenancy in common, the decedent’s share in the estate become subject to probate and being divided according to his/her will or intestate succession.

        

Naming a Beneficiary:

        The owner of an account (bank account, insurance policy or retirement account) can designate a person to inherit it upon their death. While the owner retains control while alive, the property transfers to the named beneficiary upon the owners death. In many states, naming a beneficiary is available for “pay-on-death” bank accounts, transfer-on-death securities, and in a few states including Colorado, it is possible to create transfer-on-death deeds (Beneficiary Deeds) for real estate. These Beneficiary Deed do not give the beneficiary any ownership rights while the owner is alive, but also have a few restrictions that make them infeasible in certain situations.

        

Revocable Living Trusts:

        Creating a living trust is one ways of probate avoidance. The grantor, or the living owner, transfers title to property to a trust. Typically, the grantor of the living trust is also the trustee. The trustee manages the property and retains control over the property until their death. The successor (post-death) trustee then transfers the property to the beneficiaries named in the trust. However, what people often won’t tell you is that the trust often costs more to prepare than you’ll save in probate fees, that there are costs to administering a trust and its necessary paperwork, and that property owned in a trust often causes headaches when it comes time torefinance or sell the property. Finally, most people don’t put the title to all of their property into the trust, often still leaving remaining property that still must go through a probate.


© 2018 Henze & Associates, P.C.