Probate can be a time-consuming and expensive process. Many cases are not settled until 18 months after someone’s passing, and this is for a typical case that does not involve contested issues. Under the California Probate Code, statutory probate fees for attorneys are based on the gross value of the estate and range between 0.5% to 4%, amounts which can quickly add up. Moreover, these are just for attorney fees; many other costs may be associated with the administration of the estate or the navigation of the probate process. For these reasons, many people try to avoid probate altogether. Forming a trust is one popular option to help avoid probate; however, trusts often have their own drawbacks, leading many to wonder how to avoid probate without a trust. For help answering this question, consider contacting a knowledgeable estate planning lawyer at Von Rock Law by calling (866) 720-0195.
What Is a Trust?
A trust sets out what property will be deposited into the trust and how the trustee should manage it. A trust is a legal arrangement that involves the three following parties and roles:
- Settlor/Trustor: The settlor sets up the trust.
- Trustee: The trustee manages the trust according to the terms in the trust document.
- Beneficiary: The beneficiary benefits from the trust property and/or income.
These can be separate parties or the same; additionally, a single person may share one or more of these roles with another individual.
Why Trusts Help Avoid Probate
A trust is one way to avoid probate because the property that is in the trust is considered separate from the property belonging to the settlor. Therefore, when the settlor passes away, the trust property is not considered part of the settlor’s gross estate.
Disadvantages of a Trust
While many people appreciate the flexibility and control a trust can provide, trusts are not for everyone or every situation. They do have some disadvantages, such as:
- They can be complicated.
- Some types of trust are difficult to change in response to altered circumstances.
The major drawback of a trust is that your estate may have to pay someone to administer it after you are gone. You might have to consider who the successor trustee should be and whether they can follow the instructions in the trust. The potential drawbacks mean that many people prefer not to make a trust when they have an otherwise simple and straightforward estate plan. You may ultimately decide that the costs outweigh the benefits of a trust in your particular situation.
Ways To Transfer Property Without a Trust
Fortunately, there are several ways that you can avoid probate without a trust. The goal is usually to eliminate or minimize the value of your probate estate. One of the simplest ways to do this is to transfer property directly. A knowledgeable lawyer with Von Rock Law can explain how to avoid probate without a trust, such as using one or more of the following strategies:
Lifetime gifting can be an effective way to transfer wealth to your loved ones. According to the Internal Revenue Service (IRS), you can transfer $17,000 to each recipient each year without incurring gift tax, as of 2023. For married couples, this is $34,000 per year per recipient.
As a community property state, your spouse will stand to automatically inherit your portion of community property unless there is a written agreement to the contrary. This rule means that you may not need to develop complicated estate planning documents for transferring assets to your spouse.
Property that you own as joint tenants with the right of survivorship will automatically pass to the other owner(s) upon your death. This can include real property as well as bank accounts and other types of property.
You can name a beneficiary to receive property at the time of your death for accounts such as:
- Life insurance accounts
- Retirement accounts
Even if you do not co-own a bank account with another person, you can name a beneficiary who will stand to inherit the funds in your account at the time of your death. This is called a payable-on-death beneficiary. The person you name cannot access the money in your account and does not have any ownership or control over the account during your life. When you pass away, they receive whatever funds are in your account.
Transfer-on-death designations are similar to payable-on-death designations but apply to different types of property, such as titles or securities.
One of your most valuable forms of property may be real estate, so you might wonder how to avoid probate without a trust if you own real estate. If you do not want to use a trust to transfer real property and you do not own the property as community property or joint tenants with the right of survivorship, you have another option. The California Probate Code also allows you to use a beneficiary deed to transfer real property to the beneficiary you name at the time of your death. As with the payable-on-death and transfer-on-death designations, the named beneficiary has no rights until you pass away.
Not all estates have to go through the formal and tedious probate process in California. If the estate is considered small (meaning that they are valued at no more than $184,500, adjusted every three years for inflation), your heirs can go through a simplified probate procedure, according to California Courts. Depending on the circumstances, your heirs can prepare one of the following:
- A small estate affidavit for personal property not valued at more than $184,500
- An affidavit for real property of small value not more than $61,500
- A petition for a declaration of inheritance rights to take property without probate for property not valued at more than $184,500
Many types of property are exempted when calculating the value of an estate; therefore, a person may have an estate whose total assets are valued at a sum significantly greater than these figures and still qualify for simplified probate procedures. The California Probate Code excludes the following from the value of the estate for probate purposes:
- Property held as joint tenants with the right of survivorship
- Property held by the decedent as a life estate
- Community property
- Bank accounts owned with other people or who name a payable-on-death beneficiary
- Vehicles, boats, truck campers, mobile homes, or floating homes
- Any property due to the decedent for services in the Armed Forces
- Unpaid compensation, up to $16,625, adjusted for inflation
Contact an Estate Planning Lawyer for Guidance
For many individuals, one of the primary motivations behind estate planning is to ensure that whatever assets they have accumulated are passed on to the intended beneficiaries. Because probate can be not only tedious and frustrating, but an expensive undertaking that significantly diminishes the overall value of the estate, individuals developing their estate plans often wish to spare their loved ones the necessity of probating their entire estate. For some people, a variety of trusts may offer the needed solutions; however, a trust is not the ideal answer for every situation. If you would like more information about how to avoid probate without a trust, consider contacting a knowledgeable estate planning lawyer at Von Rock Law at (866) 720-0195.