Avoiding probate—the legal process that validates a will and distributes assets after a person’s death—can save time, money, and help preserve privacy. An effective way to avoid probate is by how you title your property while you’re still alive. The way property is titled determines how it is passed on after your death, and certain methods, if executed properly with the help of your professional advisor, can allow assets to pass directly to beneficiaries without being subject to your will, and therefore avoiding the probate process:
Here are examples of different ways to title property:
1. Joint Tenancy with Right of Survivorship (JTWROS)
What it is:
Joint tenancy with right of survivorship is a type of co-ownership where two or more people own property together. The key feature is that, upon the death of one owner, the surviving owner(s) automatically inherit the decedent’s share of the property, bypassing probate.
How it works:
- The title of the property lists the owners as “joint tenants with right of survivorship” (e.g., “John Doe and Jane Smith, joint tenants with right of survivorship”). Check with your state law for any variations.
- When one joint tenant passes away, the surviving joint tenant(s) automatically inherit the deceased’s share without the need for probate.
Best for:
- Spouses, family members, or other individuals who want to ensure that ownership of the property automatically transfers to the surviving owner(s).
Example: If you and your spouse own a home as joint tenants with right of survivorship, when one spouse passes away, the surviving spouse automatically becomes the sole owner of the property.
Pros:
- Avoids probate.
- Provides automatic transfer of ownership upon death.
Cons:
- Not suitable for individuals who want to leave their share to someone other than the co-owner.
- Both owners have equal rights to the property, which may not be desirable in some situations (e.g., if one owner is financially irresponsible).
- May impact basis calculations for tax purposes.
2. Tenancy by the Entirety (TBE)
What it is:
This is a form of joint ownership that is available only to married couples. It works similarly to joint tenancy but with additional protections. In tenancy by the entirety, both spouses own the property equally, and if one spouse dies, the surviving spouse automatically inherits the deceased spouse’s share of the property.
How it works:
- The property is titled in both spouses’ names, with rights of survivorship (e.g., “John Doe and Jane Doe, husband and wife, tenants by the entirety”).
- Upon the death of one spouse, the surviving spouse inherits the entire property automatically, without probate.
Best for:
- Married couples who want to ensure that their property passes directly to the surviving spouse.
Pros:
- Avoids probate.
- Provides creditor protection (in some states, creditors of one spouse cannot seize property owned as tenants by the entirety).
Cons:
- Not available to unmarried couples.
- Requires both spouses’ consent to transfer or sell the property.
3. Revocable Living Trusts (RLTs)
What it is:
A revocable living trust is a legal document where a person (the “grantor”) transfers ownership of property to a trust during their lifetime. The grantor can serve as the trustee and retain control over the property. After the grantor’s death, the trust dictates how the property is to be distributed to beneficiaries, avoiding probate.
How it works:
- You create a trust and transfer your property into it while you are alive.
- You (or someone you trust) serve as the trustee during your lifetime, managing the property.
- After your death, a successor trustee you’ve appointed will manage and distribute the property according to the terms of the trust, without going through probate.
Best for:
- Individuals who have complex estates, multiple properties, or want to avoid probate entirely while maintaining control over their assets.
Pros:
- Avoids probate entirely.
- Can provide flexibility for distributing assets over time, such as when a beneficiary reaches a certain age or milestone.
- Can include provisions for incapacity planning (if you become incapacitated).
Cons:
- Requires time and expense to set up and maintain.
- Must transfer ownership of assets into the trust, which can be complicated and time-consuming.
4. Transfer-on-Death (TOD) or Payable-on-Death (POD) Designations
What it is:
A Transfer-on-Death (TOD) or Payable-on-Death (POD) designation allows you to name a beneficiary who will inherit your assets upon your death, bypassing probate. These designations are available for certain types of property, such as bank accounts, securities, and vehicles.
How it works:
- You add a TOD or POD designation to your bank accounts, investment accounts, or other assets, specifying who will inherit the property upon your death.
- Upon your death, the beneficiary can claim the asset without going through probate.
Best for:
- Individuals who want to pass on specific assets (such as bank accounts, stocks, or vehicles) to a beneficiary without the need for probate.
Pros:
- Simple and inexpensive to set up.
- Assets are transferred directly to the beneficiary without probate.
Cons:
- Only applies to certain assets like bank accounts, securities, and vehicles. May apply to real estate or other property in very limited circumstances.
- The beneficiary must be aware of the TOD or POD designation for it to be effective.
5. Beneficiary Designations for Retirement Accounts and Insurance Policies
What it is:
Many retirement accounts (e.g., 401(k)s, IRAs) and life insurance policies allow you to name a beneficiary who will inherit the account or policy proceeds upon your death.
How it works:
- When you set up an account or policy, you designate one or more beneficiaries to receive the assets upon your death.
- The beneficiary will receive the account proceeds or policy benefit directly, bypassing probate.
Best for:
- Retirement accounts, life insurance, or annuities where you want the funds to go directly to the designated beneficiaries.
Pros:
- Simple and avoids probate.
- Direct transfer of funds to the beneficiary.
Cons:
- The account or policy must be properly updated to reflect your current wishes (e.g., if you change beneficiaries after a life event like marriage or divorce).
- It only works for assets with beneficiary designations (not for physical property or real estate).
6. Community Property with Right of Survivorship
What it is:
Available in some states, community property with right of survivorship is similar to joint tenancy with right of survivorship, but it specifically applies to property owned by married couples. It allows the surviving spouse to inherit the deceased spouse’s share of community property automatically.
How it works:
- The property is titled as community property with right of survivorship (e.g., “John Doe and Jane Doe, community property with right of survivorship”).
- When one spouse dies, the surviving spouse automatically inherits the deceased spouse’s share of the property without probate.
Best for:
- Married couples who live in community property states (e.g., California, Texas, Arizona) and want to ensure their property passes directly to the surviving spouse.
Pros:
- Avoids probate.
- Provides automatic transfer of ownership to the surviving spouse.
Cons:
- Only available in community property states.
- Both spouses must consent to transfer or sell the property.
7. Deed of Trust or Beneficiary Deed (for Real Estate)
What it is:
A beneficiary deed (also called a transfer-on-death deed) allows a real estate owner to transfer the property to a designated beneficiary upon their death, without going through probate. This deed is revocable during the owner’s lifetime.
How it works:
- You file a deed with the county recorder’s office designating a beneficiary to inherit the property after your death.
- Upon your death, the beneficiary can take ownership of the property without probate.
Best for:
- Individuals who want to pass on real estate to a beneficiary without probate.
Pros:
- Simple and cost-effective for real estate.
- Avoids probate for real property.
Cons:
- Not available in all states.
- The property owner can change or revoke the deed during their lifetime.
Conclusion
There are many ways to title property to place property outside the control of a will, therefore avoiding probate, and the best method depends on your assets, goals, and family dynamics. However, in cases where there are circumstances surrounding titling, which raise a question as to validity, or incomplete/ineffective titling, supplementing your estate plan with a will may serve as a “catch-all” to preserve your wishes. While joint ownership and beneficiary designations work well for many, a revocable living trust can provide greater flexibility, especially for complex estates. It’s always advisable to consult with an estate planning attorney to determine which method is most appropriate for your unique situation and ensure your estate plan is properly structured.
