Is probate avoidance possible without using a trust?

                                                                        By Danielle Nodar

Yes! When helping clients formulate an estate plan, we oftentimes have questions on whether there are any alternatives to passing property to loved ones without having to go through the court-regulated formal probate process. Depending on the types of assets and beneficiaries, formal probate administration is not always necessary. For example, formal probate administration is not always required at the death of the first spouse. Real property owned by spouses as tenants by entirety passes without regard to creditor claims, and the surviving spouse allowance allows a surviving spouse to obtain up to $30,000 in personal property of the decedent spouse free and clear of creditor claims. There are also forms of informal probate, such as summary administration and administration by affidavit, which apply to certain kinds of estates and are described in more detail below.

Summary administration is available for surviving spouses. This procedure is available only if the surviving spouse is the sole heir (intestate, meaning that the decedent died without a will) or the sole devisee (testate, meaning the decedent died with a will) of the decedent. An order of summary administration will permit the spouse to proceed with the collection and distribution of the decedent’s property without the formality of regular administration. By obtaining the order, the surviving spouse assumes all liabilities of the decedent to the extent of the value of the property received.

Another option for small(er) estates is to have a “collector” appointed instead of a personal representative. A collector may file a small estate affidavit to administer the estate of a decedent with a small(er) estate.  This procedure is available for decedents whose personal property, less liens and encumbrances thereon, and less the spousal allowance, is valued at $20,000 or less.  If the surviving spouse is the collector, and they are the sole heir or devisee of the decedent, the value of the personal property less liens and encumbrances and the spousal allowance can be valued at $30,000 or less. 

Unfortunately, these informal probate procedures are unavailable if singularly-owned real estate is part of the decedent’s estate and heirs intend to sell the property within two years of the decedent’s death.  Full probate administration is necessary to pass clear title because an executor must be appointed to publish notice to creditors. If the real estate is sold within those two years and notice to creditors has not been published, the sale will be void as to creditors.  N.C.G.S. § 28A-17-12.  If the real estate is sold after two years and notice has not been published, the estate still owes the debts to creditors (if the applicable statute of limitations has not expired), but the creditors cannot pull the real estate back into the estate to sell to satisfy their debt.

Another way probate may be avoided is if assets are titled joint with rights of survivorship. For example, if you and a loved one hold a bank account as joint with rights of survivorship, you both own 100% of the account’s assets jointly during your lifetimes. When one of the joint owners passes away, the surviving owner will own 100% of the account individually.

Finally, one of the most important means of estate planning outside of the probate process is the use of beneficiary designations and transfer on death designations for certain banking or brokerage accounts, securities, life insurance, retirements accounts, and 401(k)s. As you can imagine, the bulk of many people’s assets are contained in these accounts.  These assets will pass to who you have listed as your beneficiary outside of probate, regardless of what your will says. This means that the money will get to your beneficiaries quickly and that it will not be accessible to any of your creditors at the time of your death.

Thus, it is critical to make sure that all of your beneficiary designations are up to date for primary and contingent beneficiaries.  We have seen people fail to update these after death or divorce, causing the money to go into the probate estate, which will cause a delay in distribution to your loved ones and will open those funds up to creditors.  

If you need assistance with any of the above planning, please give Jesson & Rains a call.