The two main reasons for avoiding probate relates to:
Simply put, probate courts, like other courts, move at a deliberate pace. Therefore, as more time is needed to dispose of the estate, more legal costs, incur as well. In the end, time and cost ultimately detract from the value of the estate.
Further, when assets are placed in probate, the control over how assets are distributed and to whom ultimately become a question of the court interpreting will provisions subject to claims by third parties. When not placed in probate, the individual may place their assets in a trust instrument or other device in which they can control the distribution of assets directly rather than relying on the probate process.
How to Avoid Probate?
Whether an estate enters, probate depends on how assets are structured in an estate plan. As a preliminary matter, there is not a single method by which to avoid probate. Accordingly one cannot simply state in their will that the estate should not be probated. Rather, each class of estate assets has to be designated in a way that does not trigger the need for the estate to be administered by the probate court.
An estate plan should be structured in a manner that exposes the least amount of assets to being administered in probate. Some estate planners may be able to shield all estate assets from probate if the estate is smaller or involves a less complex array of assets. However, the more likely strategy needed to avoid probate would include structuring the estate so as to keep as many assets as possible under a designation to avoid probate. The following types of assets or arrangements do not require administration by a probate court.
Avoiding Probate with Living Trusts
A living trust is a legal instrument that places assets into a trust while the grantor is still living. Under this arrangement, the grantor serves as both the person establishing the trust and the trustee.
Further, a successor trustee is selected to assume trustee duties upon the incapacity or death of the grantor. Upon death or incapacity of the grantor assets in the trust are transferred to designated beneficiaries by the successor trustee. While the grantor is still living, the assets placed in the trust are still accessible, and the trust arrangement can be altered to adapt to changing circumstances. As such, a living trust establishes a way for assets to be held for the benefit of others by a trustee without being placed in probate as the trust instructions provide directions for the trustee to distribute trust assets.
Further, when structured as an irrevocable living trust (one that cannot be revoked or amended) the trust assets generally cannot be attached by creditors and are not treated as taxable assets. An irrevocable can be contrasted with a revocable trust which can be revoked and amended and is largely subject to creditor claims and is treated as personal assets subject to taxes while being held in trust.