Although probate is not necessarily always a difficult process, many individuals want to set up their estates so that their assets avoid probate in order to save costs and avoid any possible hang-ups in distributing their assets once they die.
When estate planning to avoid probate, it is important to understand how one's various assets are titled. The way in which property is titled is important for estate planning, as it determines whether or not a probate proceeding will be necessary for transferring assets to beneficiaries.
One important thing to remember that having a will doesn't prevent the need for probate. The purpose of a will is simply to indicate where assets go after your death. But assets can be titled in three ways-individual ownership, joint ownership, and contractual title-and are dealt with accordingly.
The first possibility is individual ownership. When an asset is individually owned, it will go through probate and be transferred to beneficiaries through one's will. If there is no will, those assets will pass to one's heirs through state intestacy laws.
Assets may be jointly owned in several ways, whether by tenancy in common, joint tenancy with right of survivorship, or tenancy by the entirety. Tenancy by the entirety is available only for married persons. Joint ownership may have disadvantages in terms of estate planning, including difficulty controlling who the ultimate beneficiary will be, since the survivor will make that selection. Other possible disadvantages include estate and gift tax issues, as well as creditor access to a joint owner's share of the asset.
A third category of ownership is contractual title. This form of ownership includes assets with beneficiary designations, such as IRAs, life insurance, and annuities. One should keep in mind, though, that naming one's "estate" as a beneficiary will guarantee a probate proceeding. Trusts are another form of assets with contractual title. They avoid probate since the trust assets are titled in the name of the trust.
It is necessary to determine early on in the estate planning process whose name is on one's assets, and whether there are any beneficiaries. Doing so will allow you to find out which assets will need to be probated, and how one can minimize the need for probate.
Source: recordonline.com, "Protecting Your Future: Title is important in estate planning," Bonnie Kraham, 18 April 2011.