If you listen to the radio, or if you are on TikTok, you may have heard somebody telling you that you need to have a trust so that your estate can avoid probate upon your passing. In a recent radio ad that I heard, the law firm stated that you need to have a trust, or your estate will end up in probate, which could cost tens of thousands of dollars. That is a scary thought. Is that really what everyone should expect if they do not have a trust?
Not necessarily. The truth is, there are several ways to avoid probate. The first question you should ask, however, is should you try to avoid probate?
What is the purpose of probate?
The probate court serves a necessary and important function. The probate court is there to verify the validity of a will, if one exists, and to appoint a personal representative, or executor, who will be in charge of administering the estate. A personal representative is necessary to administer the estate, because somebody needs to take control of the estate assets and make sure that those assets are distributed to the proper people, whether they are designated in a will or whether they are the natural heirs of the estate.
The estate assets consist of all assets that are owned by a deceased person at the time of his or her passing, so long as the asset is not held jointly and there is no beneficiary designation on the asset.
What are realistic expectations for probate?
Probate is generally not a fast process. The probate only begins when someone files an application or petition with the court, seeking appointment as a personal representative. After the person is appointed, that will start a time clock for certain deadlines. The personal representative publishes notice to creditors soon after their appointment of the decedent’s passing and this begins a four-month creditor period for creditors to present any claims against the estate.
There are built in deadlines for probate, like the four-month creditor period, and managing assets in the probate process also takes time. Administering a probate generally involves tracking down assets (e.g., working with the bank to gain access to an account), and it often involves obtaining necessary appraisals and possibly selling assets, such as real estate. Depending on the market, the sale of real property could prolong the probate process.
The probate process takes time, and it will require work and fees, both filing fees with the court and attorney fees, if a personal representative retains an attorney to assist with the probate administration. However, it is important to note that when a valid will is present and family members get along; the probate process is not always as scary as it is made out to be – at least with the guidance of an attorney.
How can I avoid probate?
Here are several ways to avoid probate – though not all of them are advisable.
Assets Subject to Probate are Below Certain Thresholds
A probate is only necessary when the assets in the estate are over a certain threshold. As of the date of this writing, no probate is necessary if the total value of the personal property in the estate is less than $75,000.00 or if the real property in the estate is less than $100,000.00. These threshold numbers are set by statute, and they are subject to change. In Arizona, these numbers are set to increase later in 2025 to $200,000.00 for personal property and $300,000.00 for real property.
If a person dies with less than these threshold numbers, then a probate is not necessary, absent other circumstances that may warrant opening a probate.
Beneficiary Designations
Beneficiary designations are available for different types of assets. The most common examples are life insurance policies and retirement accounts. A life insurance policy names a beneficiary who will be paid a benefit upon the death of the insured person. In this case, there is no asset in the name of the deceased person that needs to go through probate. The life insurance benefit is distributed outside of the probate court proceeding. Such is the case for all beneficiary designations.
Beneficiary designations can be a useful tool in estate planning. If you are considering avoiding probate by making designations on all of your assets, keep in mind that it is easy to miss something, and that beneficiary designation planning is limited. All beneficiary designation distributions are outright distributions, meaning the beneficiary can immediately spend them however they want. Also, putting together an estate plan in this piece meal fashion can be messy and can result in unintended consequences.
Giving Away Assets Before Death
If a person has no assets in their name at the time of death because they gift everything they own prior to death, then there will be no need for probate.
This is one strategy that unfortunately can result in a costly estate planning mistake when someone is simply trying to avoid probate. Assets that are distributed upon death are received with what is called a basis adjustment, also known as a “step-up in tax basis.” This basis adjustment often results in removing large capital gains tax liability for the beneficiary. Assets that are gifted prior to death do not receive a basis adjustment, as the donee (the recipient of the gift) receives the same tax basis as the donor (the party making the gift). If real property, which often appreciates greatly in value over time, is gifted in this manner, the resulting tax bill could be far larger than any probate fees.
Revocable Living Trust Plan
One of the most common estate planning tools is the revocable living trust. The revocable living trust is a valuable tool for estate planning for many reasons, one of which is probate avoidance. Assets that are transferred upon death by means of a revocable living trust do not have to be transferred through the probate process because these assets are deemed owned by the revocable living trust and not considered owned by the deceased person at the time of death. However, because these assets are owned by a trust that is revocable, the Internal Revenue Code allows the trust assets to receive a basis adjustment at the time of trustor’s death.
In addition to probate avoidance, revocable living trusts provide great opportunities to protect assets for your beneficiaries.
Summary
In summary, there are multiple ways to avoid probate. However, it is important to consider the consequences of utilizing each of the above-described strategies. To make sure you are making the right decision; it is advisable to consult with an estate planning attorney before you try to implement any strategy to avoid probate.
