3 Tips to Help Clients Avoid Probate

Probate is the court-supervised process of validating a decedent’s will if they have one, gathering and valuing their assets, identifying and settling their debts, and, ultimately, distributing their estate to their chosen beneficiaries or heirs as determined by law. There are many compelling reasons to help clients plan to avoid probate. Probate can be costly and time-consuming. It can turn a deeply personal matter into a public proceeding during an already difficult and grief-filled time. To reduce the expense and disruption of probate, consider guiding your clients to take some of the following proactive steps.

1. Creating a Revocable Living Trust 

Clients should consider creating a revocable living trust. A revocable living trust is a written legal agreement created during the trustmaker’s lifetime whereby a trustee (who is often the trustmaker initially, with successor trustees named) holds assets for the benefit of a beneficiary (also usually the trustmaker initially, with contingent beneficiaries named). Upon the trustmaker’s incapacity or death, the successor trustee steps in to continue the management and/or distribution of the trust’s assets. Unlike a will, which often requires probate, assets in a revocable living trust can pass to beneficiaries without court involvement so long as the trust was properly funded. Proper trust funding requires that a trustmaker retitle all of their assets to the name of the trust. A revocable living trust offers a powerful way to intentionally transfer assets when someone passes away by avoiding the cost, delays, and potential lack of privacy of probate. 

2. Utilizing Transfer-on-Death Strategies

To help clients retain control during their lifetime while still avoiding probate, consider recommending transfer-on-death strategies. These include tools such as transfer-on-death (TOD) or payable-on-death (POD) designations for bank accounts, as well as beneficiary designations for retirement accounts and life insurance policies. A beneficiary deed can be used for real estate. Transfer-on-death strategies have the advantage of immediately transferring an asset upon the asset holder’s death to their designated beneficiary. However, there are some instances when this immediate transfer might be undesirable or have unintended consequences. Court involvement, such as a conservatorship, might be required if a beneficiary is a minor, disabled, or incapacitated. Additionally, if a beneficiary predeceases the owner, probate might still be necessary.

3. Making Lifetime Gifts

Clients can consider giving assets away during their lifetime. Gifting assets during one’s lifetime involves your client directly transferring ownership of property to their beneficiaries while still alive. This strategy carries benefits and risks. Benefits of making lifetime gifts include avoiding probate as to the gifted assets, the ability for the donor-client to witness their beneficiaries enjoying the gifted assets, and potentially reduced estate taxes (though this latter point is less pertinent for most clients given the high federal estate tax exemptions). However, clients must be aware that such gifts are generally irrevocable, meaning they relinquish control over the gifted asset. Additionally, clients might need to file gift tax returns for such gifts, and larger gifts may count against their lifetime gift tax exemption.

Your clients have options to help them avoid the time, expense, and stress of probate. However, the best strategy often begins with a revocable living trust. Drafting a trust can be time-intensive; attorneys can save time and reduce errors by using legal drafting software like Wealth Docx^®. Download our Revocable Living Trust drafting preview to see how easy it is to create customizable, state-specific documents for your clients.