Probate and Estate Administration

When a loved one passes away, their estate needs to be administered.  That means transferring their assets according to their estate plan, as well as wrapping up some of the loose ends from their life.  How the estate will be handled is determined by the type of asset and the estate planning steps your loved one took during their lifetime.  There are five basic ways most assets are handled.

Joint Tenancy

Assets held as joint tenants with the right of survivorship are shared equally by the joint owners.  When one of the joint owners dies, ownership is transferred to the surviving joint owner (or owners).  For most assets, transfer is as simple as providing a copy of the death certificate and filling out a short form.

Because of its simplicity, many people use joint tenancy as a way to plan their estate and avoid probate.  But that simply delays probate until the second spouse dies.  And what happens if a couple dies together (or one soon after the other)?  Probate happens, that’s what.

Beneficiary Designation

Some assets are distributed at your death based on an agreement (a contract) you have with the company holding the assets.  You’re probably already familiar with the concept of beneficiary designations on life insurance and retirement accounts (IRA, 401(k), and others).  But many banking and investment accounts can have a transfer on death (TOD) or payable on death (POD) beneficiary as well.

Probate

Probate is a court process that serves three primary purposes.  First, the court determines what your will is and who your heirs are.  Second, the court makes sure your creditors get paid before your heirs do.  And third, the heirs receive their shares of the estate.  People who are interested in privacy, limiting fees and expenses, and allowing their family members to manage your estate at their own pace (rather than the probate schedule required by law) may want to consider using one of the ways to keep their estate out of probate.

Small Estate Affidavit

A small estate affidavit is a way to transfer assets without going through probate.  As the name suggests, it is for small estates—those with less than $100,000 in assets and which do not include real estate (so your heirs can’t rely on a small estate affidavit to transfer your house or condo).

A small estate affidavit works well combined with a Will and Revocable Living Trust for those assets that are not transferred into the trust during a person’s lifetime.  People often choose not to transfer their cars into their trust, for example.

Revocable Living Trust

One of the signature features of revocable living trusts is that any assets held in a trust avoid the probate process entirely.  The administration of a trust is private and can be completed as quickly, or as slowly, as your family wishes.  It also tends to be less expensive than probate.  Of course, the benefits of a revocable living trust go far beyond just probat avoidance.  But a revocable living trust, fully integrated with your assets, can make sure that your loved ones never have to learn a thing about probate.