What is Probate and How You Can Avoid It?

There are actually several ways to avoid probate. But before we discuss those, let’s define probate. If you file a probate, you are asking a court to appoint someone to take care of a dead person’s assets. That person is called an executor. In Arizona, we call that person a Personal Representative. Most probates in Arizona do not require a court hearing. They can be filed 5 days after someone dies.

Although probate in Arizona is relatively simple, most people still want to avoid it. Why?

1. First, because probate scares people. It is awful in some states.
2. When a loved one dies, there is such a long to do list that most people don’t want to add a probate to the list.
3. People don’t like having a court aware of their personal situations. Probate is a matter of public record.

So, given that, how do you avoid probate?

1. Name a beneficiary on your different assets. A beneficiary designated asset avoids probate. What does this mean exactly?

a. Life insurance. If you fill out a beneficiary form for your life insurance and name your sister, Kathy, as a beneficiary, then the life insurance money will not go through probate.

b. Bank accounts. If you ask your bank to name Kathy as a beneficiary on your accounts, your bank accounts will not go through probate. Bank accounts get a beneficiary through what’s called a Pay on Death form, or Transfer on Death form.

c. Retirement accounts. If you fill out a beneficiary form for your retirement accounts, like a 401K or IRA, and name your sister, Kathy, as a beneficiary, then those retirement accounts will not go through probate.

d. Brokerage accounts. If you ask your brokerage company to name Kathy as a beneficiary on your accounts, your brokerage accounts will not go through probate.

e. Beneficiary deed. You can put together a Beneficiary Deed for your house that says that when you die, the house goes to Kathy. When you record that Beneficiary Deed at the County Recorder, the house then avoids probate.

These are very simple ways to avoid probate.

However, naming a beneficiary does have some potential downsides:

1. Let’s say you name Kathy as a beneficiary. Kathy’s husband Joe is a jerk. If Kathy dies before you, and you don’t put someone else as a beneficiary, Joe will get Kathy’s inheritance from you.
2. Let’s say you name Kathy’s five year old twins as beneficiaries, instead of Kathy. Since the kids are not adults, i.e. 18, a conservator would need to be appointed through the court to babysit this inheritance until the twins turn 18. A conservator is a court appointed babysitter of money.

Another way to avoid probate is to have a Revocable Living Trust. A Revocable Living Trust, by its very nature, lets you avoid probate. A Revocable Living Trust is basically a ramped up Will. When you put together a Revocable Living Trust, you invite your different assets to be part of the Revocable Living Trust. How does this happen?

Let’s pretend that your Revocable Living Trust is able to throw a party. The party guests are your different assets—your house, bank accounts, retirement accounts and life insurance. The Revocable Living Trust will send out an invitation to each asset. The invitation for your bank accounts, retirement accounts and life insurance says something like-
“You are cordially invited to the Revocable Living Trust party. In order to RSVP, you need to put the name of the Revocable Living Trust as a beneficiary on the particular asset.”
For the house, the invitation says something like-
“You are cordially invited to the Revocable Living Trust party. In order to RSVP, you need to record a deed, with the County Recorder, saying that your house is now part of the Revocable Living Trust.”
If the Revocable Living Trust has all of the RSVPs, then all of those assets avoid probate.

Get in contact with me today to make sure your estate planning affairs are in order.

Where There’s A Will, There’s A Way