How Can You Avoid Probate? Tips on Whether or Not You Need a Living Trust

In this article, I’m going to answer the question, “Do you need a living trust to avoid probate?” And the short answer is, not necessarily, it depends on a variety of factors. There are ways that we can title our assets to turn them into non-probate assets. We avoid probate by titling assets so that they pass by operation of law.

Breaking Down the Basics

So take for instance, a house that’s owned jointly. The house passes automatically by operation of law to the survivor. So if you have multiple tenants who are joint tenants of the property, it’s a survivorship game. Whoever passes away first loses their property interest and the entirety of the property interest transfers by operation of law to the surviving joint tenant. So that’s one way the operation of law would apply to your assets.

However, the primary way that you will likely be avoiding probate by paying attention to your asset titling is if you establish a contract. This contract will specifically establish what happens to that asset when you pass away.

Understanding Beneficiary Designations

Beneficiary designations are Pay-On-Death designations and Transfer-On-Death designations. The beneficiary designation is where you tell a retirement account custodian who the beneficiary of that account will be when you pass away.

And presumably, it’s going to be your loved ones. And you can say: 25% to each of my four children; or all of it to your nephew, or however you want to break it up. That’s a contract with the custodian appointing a beneficiary to take that asset when you pass away.

What’s the Difference Between Pay-On-Death and Transfer-On-Death Designations?

Pay-On-Death designations and Transfer-On-Death designations are similar concepts, but they apply to different types of accounts. The Pay-On-Death designation applies to a bank account. It’s a contract with the bank to pay the funds of that account to your designee. And a Transfer-On-Death designation is a contract with your brokerage account custodian to transfer the assets in that account to your designee.

The Real Estate Problem

The next issue that comes up is real estate. So, how do you avoid probate and how do you avoid setting up a living trust if you have real estate? Well, the simple solution is the Transfer-On-Death deed. You can create a Transfer-On-Death deed to transfer your property at your death to the designee that you established in that deed. Again, that operates by operation of law to pass that asset to your designee, and avoids probate. You just have to make sure it is recorded with the court, otherwise the TOD deed will be ineffective.

It’s key to note that you still need a will. And if you acquire an asset after you do your planning, you need a safety net for anything that doesn’t get transferred by operation of law. Something you can do with the will is to create an expedited procedure for probate if that’s going to take place. And what you do, specifically in Virginia, is you name the same people to be the executors as are going to be the beneficiaries.

Let’s do a Statement In Lieu!

So for example, if you have three kids and you just want a simple will, you don’t want to do the trust, you’re going to want to set it up so that your three kids are the executors. Executors are the people with authority to distribute assets are the same as the beneficiaries. So, what you’re going to do to establish that expedited procedure and make sure that is available to your fiduciaries.

Basically what you’re going to do is make the same people be your executors and beneficiaries. And what that does is that allows you to approach the commissioner and say, “Here’s a simple affidavit that all three executors have signed, they’re all the same beneficiaries and we affirm that the estate has been distributed according to the terms of the will and there is no need for us to formally account to you for that distribution.”

This is called a statement in lieu of a formal accounting, and that’s an expedited procedure available to you if you appoint all the beneficiaries to be executors in your will.

Get Started Today

And so the question is, do I need a trust to avoid probate? The answer is, no. It takes about the same amount of time and it cost at least as much if not more to do but the answer is, no. If you have any more questions about whether or not you need a trust to avoid probate you should schedule a consultation with our Alexandria Estate Planning Attorney today!