So all you need to avoid probate is a Will, right?
Wrong.
A Will does not, in and of itself, lead to probate avoidance. This is a common misunderstanding. A Will may proceed free of probate or, more likely, it will help to control the probate process once inside of it.
So what determines if your Will steers you free of probate?
The answer is: it doesn’t.
How your estate is held determines this. It comes down to how much of your estate is in the form of a “probate” asset or a “non-probate” asset.
If all your assets are “non-probate”, no worries. No probate. What are examples of “non-probate” assets? Life insurance where a specific beneficiary is named, a 401(k) or IRA where a beneficiary is named, a bank account where a beneficiary is named or there is a joint account holder who is still alive. Notice what all three of these examples have in common. They all have beneficiaries named. If an asset names a specific beneficiary it is “non-probate” and no probate proceeding is necessary to distribute those assets. I liken this to “contract law trumping a Will”. If you signed some agreement with your bank, with your insurance company or with your investment advisor, during your lifetime, that names a specific beneficiary to receive your assets upon death, you have created a “non-probate” asset. A Will does not control “non-probate” assets.
So what is a “probate” asset? It is the opposite of a “non-probate” asset. There are no beneficiaries named. Common examples of this are household goods and furnishings, boats, automobiles, and sometimes bank accounts, investment and retirement plans and even life insurance. Bottom line: if one cannot determine who gets the asset via a previously signed agreement, it is a “probate” asset and now probate must be commenced.[1]
You may be thinking at this point, so, if I place a beneficiary on all of my estate assets I can then avoid probate? And the answer is ‘yes’, with some caveats. One major caveat is that your beneficiary, or ‘back-up’ beneficiary, must still be living when you die. If they are not alive, then it comes back to the question, can my bank, for instance, tell from the form I signed what specific person gets my bank account when I die. If the answer is “no”, probate must be initiated (again, if the net value your “probate” estate is more than $75,000, probate must be initiated to distribute assets).
Now, to be clear, there are other reasons for having a Will and actually going through probate. Just a few examples are: appointing guardians for your children, creating a Special Needs Trust for special needs children or adults, and creating other trusts containing conditions for distributions. To avoid probate in these cases, some choose to acquire a “Revocable Living Trust”. That instrument handles the above three elements, for example, and at the same time avoids probate. While a “Living Trust” cost more on the front end, it produces peace of mind for your descendants or heirs after your passing. And there are other significant benefits to a “Living Trust” which must be left to another article.
The Minnesota legislature has been gradually making it easier to avoid probate by allowing more beneficiary designations on your property. In 2009, it created something called a “Transfer on Death Deed” which allows you to place a beneficiary on real estate. In 2016, the legislature passed a law allowing one to place a beneficiary designation on “watercraft”. And in 2017 the legislature enabled Minnesotans to name a beneficiary for motor vehicles. Thus, at this point, about the only property left where no beneficiary can be legally attached is your household goods and furnishings. But a Will, coupled with a written personal property list mentioned in the Will, can still direct even these assets outside of probate.
Such a process of ensuring that all of your assets have beneficiary designations will take some work on the front end. And then it will require monitoring in case one of your beneficiaries dies. But for those on tighter budgets, this is a cost effective way to avoid the expense and delay of probate and to avoid the more expensive, “Living Trust”, which also avoids probate.
And just one more warning about placing beneficiaries on real estate. If the intent is for the beneficiaries to hold onto the property for a while after death, problems may arise. Some on title may wish to sell off their interest. What if they sell off to a stranger? Some may not pay their fair share of expenses or, some may use the property more than others. A situation like this may call for the development of a cabin trust or LLC to ‘manage’ the property after death. Executing a Transfer on Death Deed in this situation may be too simplistic.
To gain a better understanding of your options for avoiding probate or whether a trust in more advisable for you, it is highly recommended that you meet with an experienced estate planning and probate lawyer.
[1] An exception to this is if the net value of all probate estate assets is less than $75,000, then probate may be avoided, if there is no real estate subject to probate.
