You have likely heard the horror stories regarding probate. You may have heard a comment from a friend or neighbor or read something on the internet along the lines of, “In probate, the court decides who gets your money,” or “Your money will be tied up for years in probate.” While there may be some element of truth to these types of statements, they are often misleading and greatly exaggerated. This article will define probate, describe some of its advantages and disadvantages, and suggest some methods of planning to avoid probate.
What is Probate?
It is important to have understanding of the purpose of probate before you determine that you would like to avoid it. Probate is an orderly process of appointing a person to administer your estate (known as a personal representative), determining any questions raised regarding the validity of your Will, and determining the persons who are entitled to receive your estate pursuant to the terms of your Will or pursuant to Minnesota’s laws of intestate succession if you do not have a Will.
There are several advantages to probate. The probate process provides access to the court if there are questions regarding the actions of the personal representative, provides a forum for dispute resolution, generally limits the amount of time that creditors can make a claim against your estate, and often ensures that money is available to pay important expenses, such as your debts, taxes and funeral expenses. The probate process may also provide some peace of mind to your personal representative and beneficiaries that your estate has been administered properly.
Of course, probate has its disadvantages as well. Much of the documentation filed with the probate court is public record, including your Will and the probate Petition or Application, which lists information regarding your assets and beneficiaries. The probate process can also be costly, as your personal representative will likely need to hire an attorney and pay certain court costs. Additionally, your assets may be unavailable to pay your final bills and expenses until the personal representative has met certain statutory notice requirements.
Despite its disadvantages, the probate process in Minnesota can be a fairly painless process. In Minnesota, probate can be done through an informal process in which the personal representative is able to conduct the process without attending a court hearing. Informal probate is a fairly cost- and time-efficient way to administer your estate.
How Can You Avoid Probate?
Probate only applies to those assets that are considered “probate assets.” Probate assets include the following assets that are owned in your name alone, subject to the exceptions listed in the following paragraph: real estate, personal property, bank accounts, stocks, bonds, vehicles, household goods, personal effects, collectibles and the like. If you own real estate in your name alone, it will always be subject to probate. However, if you do not own real estate and the total value of all of your probate assets add up to $50,000 or less, those assets can be collected and distributed to your beneficiaries by using an Affidavit of Collection.
If you own any of the probate assets previously described jointly, they become non-probate assets and will pass to the surviving joint owner upon your death. Additionally, many financial accounts may become non-probate assets by completing a transfer-on-death (TOD) or payable-on-death (POD) designation at the financial institution where those assets are held. In Minnesota, you can also record a Transfer on Death Deed to transfer your home after your death outside of probate. Finally, assets such as life insurance policies, annuities and retirement accounts include beneficiary designations and will pass to those beneficiaries outside of probate.
Even though you can avoid probate through naming beneficiaries on your assets, that does not mean that you should. Converting all of your probate assets to non-probate assets through the use of joint ownership, POD or TOD designations, and beneficiary designations may make it very difficult to ensure that your final debts, expenses and taxes get paid. These types of ownership arrangements also often do not adequately contemplate changes in circumstances, such as one of your beneficiaries dying before you. Finally, these types of ownership arrangements often will not adequately protect certain beneficiaries, such as minor or younger beneficiaries who may receive a large inheritance outright.
The best way to avoid probate and ensure proper flexibility in your planning is through the use of a Revocable Living Trust. A Revocable Living Trust is an arrangement whereby you transfer your property to a trustee who will manage the trust property on behalf of the trust beneficiaries. You will serve as the original trustee and trust beneficiary and, during your lifetime, you will continue to treat the trust property as if it is still owned in your name.
The arrangement described above is memorialized in a Trust Agreement. In the Trust Agreement, you will also appoint successor trustees to take over in the event you are incapacitated or upon your death, and you will name successor beneficiaries for the property after your death. Upon your death, the successor trustee will step into your shoes and administer the trust for the successor beneficiaries, and this is all done outside of the probate process. The Trust Agreement also allows you to build a great amount of flexibility into your estate plan by providing for different contingencies upon your death.
The probate process in Minnesota provides for an orderly, court supervised, and fairly efficient way of administering your estate after you die. However, many people will want to avoid probate because of its attendant costs and other disadvantages. If you are concerned about avoiding probate, you should be very cautious of doing so through the use of joint ownership, POD, TOD and beneficiary designations without first consulting with an experienced estate planning attorney. You should also consider the advantages of using a Revocable Living Trust to avoid probate.
If you have any questions regarding the content of this article, estate planning or estate administration in general, please feel free to contact Randall Sayers at 651-332-8725; email@example.com.