Avoiding Probate

April 1, 2001 Advisory
1
The importance of avoiding probate is often exaggerated in articles and
seminars. Avoidance of probate, in and of itself, will not reduce the
death taxes otherwise payable, nor will it totally eliminate the need to
address some estate settlement issues. Moreover, in some cases, probate
court oversight can provide invaluable protection for families and
individuals who are at risk of financial mismanagement or of otherwise
having their material circumstances compromised. In most cases, however,
careful pre-death planning, can enable you to structure your estate plan
so that much of the administrative burden of probate will be
eliminated, which, in turn, can help simplify the estate settlement
process and reduce settlement fees and expenses.
Among the most common and simplest ways of reducing probate court
involvement in the estate administration process are lifetime gifts and
re-titling assets (e.g., from sole ownership or tenants-in-common to
joint with a right of survivorship). If you anticipate having a sizable
estate, establishing an inter vivos (or "living") trust can be a good
way to reduce probate court involvement in the estate administrative
process and can afford greater privacy with respect to the provisions of
your estate plan and the on-going management of your assets. For
example, if your inter vivos trust has a continuing trust for a
surviving spouse or other family member, that continuing trust will
usually not be subject to on-going probate court oversight unless so
requested by a trustee or beneficiary, whereas a comparable trust
created under your Will would usually have to file periodic accountings
with the applicable probate court. Thus, appropriate planning can allow
you to (1) minimize the inconveniences of probate, for example, by
holding certain important assets, such as the family home, in a way that
will not be subject to probate; and (2) maximize the usefulness of the
process, for example, by establishing trusts subject to continuing
probate court supervision, if you are concerned that your heirs might
not have the financial and administrative skills to be able to
adequately supervise the situation themselves.
The probate system, which focuses primarily on the actual transfer of
property from a decedent to the rightful beneficiaries, should be kept
conceptually distinct from the transfer tax system, i.e., the
interrelated federal and state estate and succession taxes. Avoiding
probate does not mean avoiding death taxes, though sometimes careful
planning can achieve both results.
In addition to supervising the administration of decedents' estates,
probate courts have other broad areas of jurisdiction, though this, too,
varies by state. Typically, probate courts will handle matters involving
fiduciaries, i.e ., persons to whom property is legally committed to be
administered for the benefit of another, subject to certain duties and
standards. This may take the form of an executor administering an
estate, a conservator handling the financial and personal affairs of an
incompetent adult, a custodian managing the finances of a minor child,
or a trustee managing a trust fund. In some states the probate courts
also have jurisdiction over certain family law and charitable matters.