Probate Assets Explained

What is Probate?

One of the first concerns our clients have when they meet with us to discuss their estate plan is that they want to avoid probate.  Probate is a common term for the administration of a loved one’s estate through the local court system.  The probate system in Indiana is not overly burdensome but it may cause some delays in distributing assets and also exposes many of your estate documents as public records open to review.

So, when is probate required and how can clients avoid probate?

We use a simple two-prong test for determining what assets will be probate assets, it is as follows:

  1. Assets that are in one person’s name (not owned jointly); and
  2. Assets that have no agreement in place as to what happens to it when you pass away.

For married couples, there are likely no probate assets (and probate is not required) on the first death.  Married couples tend to own assets jointly and any individual assets (such as retirement assets) have beneficiary designations.  One common expression we used for married couples is that “we are planning for the second death.”  It is not until the second death that a probate estate is likely to occur.

How to Avoid Probate

The are several simple approaches to avoid probate if the client desires it. All of the approaches to avoid probate either deals with the first prong or second prong of our probate test.

A living trust (or revocable trust) is the first approach. When you put your assets in a living trust, you make that asset fail on the first prong.  The asset is no longer in your name alone, it is owned by the living trust.

Owning assets jointly is the next way to fail the first prong and avoid probate.  By changing ownership of assets from individual to joint ownership, you are postponing the probate until the death of the surviving joint owner.

The next approach is to make a transfer on death designation for assets that you keep in your individual name. This creates an agreement as to what happens to the asset and it now fails the second prong.

The last approach is to make beneficiary designations to your family and friends.  This is a common method used for retirement account and life insurance proceeds.  This also creates an agreement as to what happens to the asset.

These approaches can seem simple but it is important to meet with an attorney that can review your objectives and goals while making the decision how to best handle your estate plan.  We have met with clients that have similar assets but very different goals or family situations; these clients end up with different estate plans.