The Top Ways to Avoid Probate
Updated: Aug 21, 2020
Your state may exempt small estates from the probate process. In Washington State, your estate may not need to be probated if it is has assets valued under $100,000.
The cleanest way to avoid probate is to own nothing when you die. Typically this is accomplished by giving away all of your property before you die, in addition to placing your property into accounts with beneficiary designations or holding your property in joint tenancy.
Revocable Living Trust
It is often more logical or practical to transfer title of assets to a revocable living trust, where the trustor(s) is also the trustee and the beneficiary. This person would retain the power to control the trust assets and use them for their benefit during their lifetime. In addition, the trust will often name residual beneficiaries and a successor trustee in the event of the death or incapacity of the trustor. Further, the trust may determine where the property will go after the termination of the trust. For example, a transfer to the residual beneficiaries without court involvement.
Distributing Trust Property
Similar to a will, a trust may be setup to direct how one's property should be distributed that one dies. In that regard, a trustee has similar functions to the personal representative of a will. Your trust could terminate immediately upon your death and call for a percentage distribution or by specific items of property, to your residual beneficiaries or to a different trust.
In addition, your trust could immediately wrap up after your death, or continue to hold trust property for some time thereafter.
There are many different variations of trusts and they come in all different shapes and sizes. Some trusts you may have heard of are: Supplemental Needs Trust, Special Needs Trusts, First Party (Grantor) Special Needs Trusts, Third party Special Needs Trusts, Tax Shelter Trusts, Disclaimer Interested Trusts, Credit Exemption Trusts, Lifetime Trusts, Grantor Trusts, Irrevocable Trusts, Life Insurance Trusts, and AB Trusts.
The "A Trust" is also commonly referred to as the "Marital Trust," "QTIP Trust," or "Marital Deduction Trust." The "B Trust" is also commonly referred to as the "Bypass Trust," "Credit Shelter Trust," or "Family Trust."
The laws that govern trusts vary by state, but state law, federal law, case law, property law, IRS codes, property law, and social security income and medicaid planning laws will all be at play. And we could spend a full day seminar just going through each type of trust and their respective tax avoidance strategies. As always speak to your attorney about whether a trust is right for you and which type of trust fits your situation.
Transfer on Death Deeds
Typically any property not distributed to a trust must be probated. However, in 2014, Washington enacted a Transfer on Death Deed statute that allows you to keep your property out of probate by essentially adding a beneficiary designation to your property. This works similar to your bank account insofar as if your bank account has a beneficiary designated then upon your death that account will go directly to your beneficiary, and without having to go through probate. Transfer on Death Deeds may help many people reduce their estates to $100,000 or less.
For TODDs, If one of your beneficiaries does not survive you then their share lapses and is distributed to the remaining beneficiaries proportionately.
Community Property Agreement
In Washington, married couples and registered domestic partners can avoid probate by signing a Community Property Agreement (CPA). The agreement is generally that when one of them dies, all of that person's property will pass directly to the other.
As always speak to an estate planning attorney before your need for avoiding probate materializes. Thanks!