Often, there is a lot of talk about “avoiding probate.” What is probate? And do I need to avoid it? And if so, how is that done?
Probate is the legal process that occurs when a person passes away with assets titled in his or her individual name. Probate is a formal court process that ensures the assets of the deceased are transferred to the appropriate beneficiaries. An individual, normally the nominated Executor if the deceased had a Will, applies to the local county probate court to become the Executor. If there is no Will, then Ohio statutes provide an order of priority for who may be named as Administrator. The probate court then oversees the administration of the estate. Some people believe that if they have a will, distributions will avoid probate. Sadly, this is not true.
Why do people talk about avoiding probate? The probate process involves court costs and most likely legal fees. Often, Executors require legal assistance to prepare the probate forms and other paperwork. The probate process can tie-up probate assets during the administration of the estate. Estate administration may last a few months or even a few years. During the administration of the estate, the beneficiaries may have little to no access to the assets.
Another characteristic of the probate process is that all the probate documents, including the Will and subsequent paperwork filed with the probate court, become public record. Do you want your snoopy neighbor being able to see how much you were worth and to whom you left your assets? Maybe not.
If any of the above issues concern you, how do you avoid probate? There are lots of ways and some of them are very simple. Remember, probate only applies to assets titled in your individual name. If the asset is joint with the right of survivorship with someone else, then that asset avoids probate.
For Ohio real estate, you may execute a transfer on death designation affidavit (“TOD”). The TOD allows the owners of the property to designate who they want to leave the property to upon their deaths. This is significant for the ownership of minerals, oil, and gas. Valuing those assets can be very difficult and the court may require an appraisal which could cost thousands of dollars. The TOD gets recorded with the County Recorder but may be changed at any time prior to the owners’ deaths.
For life insurance and retirement accounts, the beneficiary designation will control the disposition of the assets upon death. If an individual says in his Will that he wants Mary to get the proceeds but the beneficiary form designates Johnny, then Johnny will receive the proceeds. If there is a beneficiary designation in place with a surviving beneficiary, which is not the deceased’s estate, then these assets will avoid probate.
For cash accounts and investment accounts, financial institutions usually have payable on death or transfer on death forms which allow an individual to name beneficiaries to receive the balance of those accounts at his death.
The Ohio Bureau of Motor Vehicles has a process in place in which an individual may obtain a new title with a transfer on death beneficiary designation to keep vehicles from going through probate.
For business interests, like LLC interests or Corporation stock, a transfer on death designation may be used. This is extremely important. Family business interests should not go through probate. If they do, the interests must be valued, which will likely mean a costly appraisal. The value of the company becomes public record. And the probate process may impede the normal running of the business during the estate administration.
You may also fund a revocable trust during your lifetime (or the trust may be named as the beneficiary on the forms discussed). A trust passes outside of probate and remains private. A revocable trust may be amended or revoked at any time during the individual’s lifetime. This is an effective way to avoid probate and to also provide for the distribution of assets over time to the beneficiary(ies) for the purposes stated in the trust.
It is never easy to prepare for “what happens when…”, but lack of planning may result in additional frustrations, delay, and costs for your loved ones