By Jay Syverson
Probate is the process by which a person’s estate is settled after death. Final bills are paid, final taxes are filed, and assets are collected and distributed to the beneficiaries. The entire process is supervised by the court, usually takes 9-12 months, and comes with expenses – court costs and attorney fees – that can exceed 4% of the estate. Additionally, probate files, including your will and a full inventory of your assets, are public information. For those reasons, many people want to avoid probate.
The most comprehensive strategy to avoid probate is a revocable living trust (RLT). An RLT is essentially a substitute for a will. At your death the property in your RLT passes to your beneficiaries just as it would under a will. However, with a RLT, there is no need to probate your estate. The RLT owns all of “your” assets, and the individual owns nothing. Because the individual owns no assets, it is not necessary to probate the estate.
In some circumstances it may also be possible to avoid probate without creating an RLT. Assets that have designated beneficiaries (DBs) pass directly to those beneficiaries, outside of probate. If all of your assets have DBs, no probate is necessary. However, relying on beneficiary designations is not appropriate for every situation and should be used with caution. This strategy is rather inflexible, needs to be monitored regularly to address changes in assets, and doesn’t allow for contingencies (such as the death of a child) that can and should be addressed in wills and RLTs.
Iowa does not allow real property to have a DB. If you own real estate, the only way to avoid probate is to have a RLT, or to name a joint owner. When property is jointly owned, at the death of the first owner the property passes automatically to the surviving owner and no probate is necessary. That often makes great sense when both spouses are alive. However, a joint owner has immediate rights in the property – unlike a person who is simply named as a beneficiary of a retirement plan or life insurance policy. They have the right to use the property and must consent to any proposed sale or mortgage of the property. Most clients do not want to burden themselves with those lifetime restrictions when the joint owner is anyone other than a spouse.
Avoiding probate is possible and desirable for many people. Business owners, people concerned with privacy, and those who want to simplify the estate settlement process should consider revising their estate plan to help their family avoid probate.