How to Avoid Probate

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We give herein our admittedly biased opinion on this subject based upon our experience in this area. We have done many living trusts over the years (and will continue to recommend same in the appropriate cases as there are fine tools in the estate planning area) but all to often we feel that the rush to recommend same by others is not in the clients best interest. We have struggled too many times to try to undo irrevocable trusts (either well drafted or otherwise) when the grantor has had a change in plans or some unforseen event occurs or a new law is enacted.

Avoiding probate does not necessarily mean estate taxes will have been avoided. It also does not mean you can avoid your creditors if you have control over the trust assets during your lifetime. If the trust is to be irrevocable, so that you can not longer change it, then by necessity is will be a complex document. If it is revocable then the time and expense in establishing one must be weighted with the flexibility of doing a will which only looks at the time frame of your death and not of the things you will do during your lifetime. New York has a ceremonial system of probate process which is different from some other states such as Florida which gave rise to the now famous book regarding Avoiding Probate. In New York any estate more than one million dollars is subject to an estate tax and it is most prudent to wait six months from day of death to use alternate valuation to lower estate taxes and fix the beneficiaries cost basis. Creditors have seven months to file claims to get paid. In our opinion the notion that because of its perceived faster to distribute assets than using the probate process does not justify the cost and expense of drafting living trusts except for certain cases such as where the location of heirs at law cannot be determined, there is disharmony in the family or there is some other administrative reason for doing so. Further ALL assets must be included in the trust and our experience is that this is not the norm so we end up probating the will anyway.

One of the many ways to avoid probate is to execute a living trust. This is a separate entity to which a person transfers ownership of his real property (house, etc.,) from himself to a trust which he controls and can revise at any time (except in the case of an irrevocable trust.) Upon death, the persons named as beneficiaries in the trust acquire ownership of it and, therefore, the property the trust owns.Life insurance, savings accounts, and joint tenancies with the right of survivorship are some of the other ways people use to avoid probate.

Again avoiding probate does not necessarily mean estate taxes have also been avoided. The laws imposing the federal estate tax have been modified to include within the definition of the person’s taxable estate, property held in a living trust, life insurance, “payable on death” or “transfer on death” financial instruments, and most other property which is transferred from a dead person to a living person in consequence of the death. Inter vivos trusts can reduce estate taxes if they are properly structured, but that is not related to the avoidance of probate. Generally, to avoid an estate/inheritance tax, a person must give it away irrevocably or leave it to a qualified charity. However, the use of credit shelter trusts (also called AB trusts) can allow a married couple to preserve both unified credits, allowing up to twice the total estate to pass to heirs without estate tax. This may reduce or eliminate the total tax the couple would have otherwise paid.