Posted on February 22, 2012

by: Raymond Sheffield

Avoiding Probate is often a key goal for clients in their estate planning. This article will give you eight examples of property that passes directly to your beneficiaries without the need for probate.

1. Property Passing Outright to the Surviving Spouse

California has a very simple probate procedure for property that passes outright to the surviving spouse. The spouse may file a Spousal Property Petition with the probate court. If no one objects, the court will generally grant the petition and the property will ordered to the surviving spouse. We commonly do these for estates where the first spouse died without a Will or a Trust. Under California law, under those circumstances, the surviving spouse would get all of the Community Property and a third to half of any Separate Property of the deceased spouse. The Spousal Property Petition avoids the need for the lengthy and expensive probate process most client’s dread needing.

2. Estates of Less than $150,000 in Value

Small estates do not have to go through the full probate process. A Section 13100 affidavit is given to the institution holding the property. Upon receipt of the affidavit, the institution will turn over the asset the Personal Representative for distribution to the proper beneficiaries. You cannot do a 13100 affidavit, however, if the estate consists of any real property, no matter the size of the estate.

3. Assets in a Trust.

Generally, assets that are in a Trust do not pass through probate. The Trust terms declare who is to receive the property when the Trustmaker’s pass away. The Trustee follows the terms of the Trust and distributes the property to the Trust beneficiaries.

4. Life Insurance

If there is a valid beneficiary designation the life insurance will be distributed to the beneficiaries named on the designation. The life insurance contract governs who the beneficiary will be, so there is no need to probate the life insurance policy. However, if there is no named beneficiary of the policy, then the insurance company will usually require that the policy be included in the probate so they know who should get the death benefit of the policy.

5. Retirement Plans and Annuities

In the same way that life insurance usually avoids probate, retirement plans like your 401(k), 403(b), etc. avoid probate if there is a valid beneficiary designation. Avoiding probate of the retirement plans is especially important due to the negative income tax consequences of having the probate estate as the recipient of the plan proceeds.

6. Bank and Brokerage Accounts

Most financial institutions offers the ability to use a beneficiary designation on the account. This will cause the account to pass to the named beneficiary and avoid probating the account. Sometimes these are called “Pay on Death” designations. Other times, they may be called “Totten Trusts.”

7. Buy-Sell Agreements

In a Buy-Sell Agreement, the owners of a business agree among themselves to purchase the ownership interest from any owner who passes away. This allows the business to continue operating the way it has in the past without interference from the spouse or children of the deceased owner. In exchange for purchasing the ownership interest, the surviving business owners pay the deceased owner’s beneficiaries in cash or in kind. These payments are made directly to the beneficiary and avoid probate.

7. Property Held as Joint Tenancy

If you own property as Joint Tenants, title to the property will pass to the remaining joint tenants on the death of one of the joint tenants. I would not advise using Joint Tenancy as your method for transfering property outside of probate without consulting a lawyer to work out the potential problems and unintended consequences that can occur. Certainly, do not expect that if you name one of the children as the joint tenant that you are leaving the property to all of the children. The property passes by law to the surviving joint tenants, not all of the brothers and sisters of that joint tenant.

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