One of the most frequent questions we get asked by our estate planning clients is how they can avoid the necessity of probating their estate. They want their estate to be administered by their families in as easy a way as possible without needing to go to probate court. An estate needs to be probated in Minnesota when there are assets that are in the deceased person’s name alone and the total amount of those assets exceeds $75,000. Here is a brief summary of the three most common strategies for avoiding probate:
1. Set up a trust and transfer all your property into the title of the trust.
Trusts can either be set up immediately, or through your Will - called a ‘Testamentary Trust.’ The main benefit of setting up a trust through your Will is that there is less work for you to do on the front end. However, the burden falls on your personal representative/trustee to do the bulk of the work to establish the trust on the back end. A trust that is set up immediately requires you to do a significant amount of work on the front end to fund the trust by retitling assets, such as bank accounts or your home, into the name of the trust. However, it is less work and expense for your personal representative after you die. The best option for you should be discussed with an estate planning attorney.
Note: Transferring your home into the name of the trust through a quit claim deed may accelerate your mortgage and trigger the “due on sale” clause. Executing a Transfer on Death Deed could be a better strategy if you have a mortgage on your house. (see section 2.)
2. Execute a Transfer on Death Deed for Real Property
A Transfer on Death Deed (TODD) effectively transfers property that you own to the person that you designate in the deed upon your death. That person would simply need to take a certified copy of your death certificate and an Affidavit of Identity and Survivorship to the county recorder’s office to have the property transferred into their name. (This could be combined with Section 1, where you execute a TODD that transfers the home into the trust upon your death.)
3. Add Payable on Death Designations and Joint Owners
Probate is only required for assets that you own in your name alone and that do not have beneficiaries. On certain types of assets, such as investment accounts, IRAs and 401k’s, you can designate who should receive that asset upon your death. Make sure that the beneficiaries on these types of assets are up to date – you probably wouldn’t want assets going to a former spouse simply because you forgot to change the beneficiary!
You can also designate who you want to receive the funds from bank accounts by filing Payable on Death (POD) forms with your bank. (Each financial institution has their own form for this.) Your POD beneficiary would be able to access the funds after your death by bringing in a certified copy of your death certificate to the bank. An alternate method is to add a joint owner to the account. This could be problematic though as your bank account could be considered part of their assets. In addition, that person would have immediate access to your funds without your permission or approval. Filing a POD form and executing a durable Power of Attorney would allow for the bank account to be transferred to the designated person upon your death while also allowing them to access your bank account when you become incapacitated.
Note: A durable Power of Attorney is effective immediately when it is signed and not only when you become incapacitated. However, you can execute a Power of Attorney and keep it with your important documents for your loved one to access upon your incapacity. They can’t utilize the Power of Attorney unless you give the executed document to them.
Posted by Schuyler A. Tilson-Doheny
Please remember, this post provides educational information only and in no way constitutes legal or tax advice.