Here in California, the Probate Court process is awful! It’s cumbersome, takes a very long time, is expensive, and all the filings are public. Thus, our goal is to help all of our clients avoid Probate.
But to avoid Probate, first you need to know what will get you there in the first place! It’s all about how assets are titled – if an asset is titled in a person’s name, say “Jane Doe,” and then that person dies, we don’t who is supposed to inherit that asset. The asset doesn’t just go automatically to Jane Doe’s spouse or children, unless specified.
To make sure assets don’t get “stuck” in Jane Doe’s name, you can title assets 5 different ways:
- Create a Revocable Living Trust and title the assets in the name of the trust. We believe this is the VERY BEST way to avoid probate! Here’s how it works: Jane Doe creates and executes a revocable living trust. She then submits a grant deed to the county recorder’s office transferring her real property from “Jane Doe, an unmarried woman,” to “Jane Doe, Trustee of the Jane Doe Revocable Trust.” She also provides a copy of the trust or the Certification of Trust (shortened version of trust) to the entities holding her bank accounts, brokerage accounts, mutual funds, etc. Those entities either change the ownership of the account from “Jane Doe” to “Jane Doe, Trustee of the Jane Doe Revocable Trust”, or the entities create new accounts titled as “Jane Doe, Trustee of the Jane Doe Revocable Trust” and transfer the old accounts to the new ones. Once the assets are titled in the name of the trust, the assets can pass according to the terms of the trust and thus avoid the probate court!
- Update your Beneficiary Designation Forms. Jane Doe should contact the entities where her retirement accounts and life insurance are held, and ask for them to send her blank beneficiary designation forms she can fill out. Alternately, she might fill out a beneficiary designation form online. She can name individuals, charities, or her revocable trust as beneficiaries. As long as a beneficiary is named who is living/exists, the assets pass directly to the named beneficiaries and avoid probate!
- Hold the Assets in Transfer-On-Death (TOD) or Payable-On-Death (POD) Accounts. Some bank and brokerage accounts have associated beneficiary designation forms, and then the assets in those accounts will automatically pass to the named beneficiary(ies) upon your death and avoid probate. The main drawback to this approach is that the owner must keep careful track of the named beneficiaries; you need to remember to update the beneficiaries if they die or if you change your mind about beneficiaries.
- Title the assets in Joint Tenancy. Some assets can be titled in joint tenancy, that is, the asset passes to the other person named as joint tenant upon the first person’s death. For example, an asset titled as “John Doe and Jane Doe, Joint Tenants” would pass directly to John Doe upon Jane Doe’s death and avoid probate. There are a couple of drawbacks to this approach: (1) If John Doe and Jane Doe die at the same time, the asset would still go through probate; and (2) Upon Jane Doe’s death, the asset would only get ½ of a “step-up” in the cost basis.
- Fill out a Small Estate Affidavit. If Jane Doe dies and has under $166,250 (as of 2021) in her name, those who would inherit under the California Probate Code could fill out what’s called a Small Estate Affidavit, also called a 13100 Declaration (named after the Probate Code section where this procedure is found). The proposed recipients would bring the signed and notarized Affidavit to the entities where the assets are held, along with Jane Doe’s original death certificate, and the entities should release the funds directly to the proposed recipients, thus avoiding probate.