Most people create estate plans for the primary purpose of avoiding probate. Through beneficiary designations, trusts, joint ownerships, they aim to ensure a seamless transfer of ownership that avoids court.
But sometimes, even the best-laid plans can quickly unravel.
This is why it is best to create an estate plan with the assistance of an estate planning lawyer.
Technical errors or sometimes just a simple oversight can cause a carefully orchestrated estate plan to fail, and then the properties intended to be transferred outside of probate end up right back in court anyway.
Some people refer to this, fittingly, as the “accidental probate.”
Below we take a look at some of the more common fails of an estate plan that can pull properties back into probate.
Outdated Beneficiary Designations
One of the most common, and possibly easiest, non-probate transfers are the beneficiary designations of certain assets including:
- Pay-on-Death (POD) bank accounts
- Transfer-on-Death (TOD) securities
- Life insurance policies
- Retirement accounts
The theory is that these accounts are based on contracts with a beneficiary designation clause. That is, the account holder specifies the beneficiaries to whom the assets or funds will be transferred in case of death. These types of beneficiary designations are designed to function outside of probate, where the transfer of properties takes place immediately upon satisfying certain documentary requirements.
But it can also be very easy to forget that the beneficiary designation must be updated periodically. For instance, a person may designate their spouse as their beneficiary to a life insurance policy, but the spouse-beneficiary passes away before the policy owner. When the policy owner dies, and the designated beneficiary has also passed away, the life insurance proceeds will default back to the probate estate.
It is therefore a good idea to periodically review your beneficiary designations, especially after major life changes such as a death, a birth, marriage, or divorce.
In addition, you shouldn’t leave contingency beneficiaries blank – these are the beneficiaries in case the primary beneficiaries pre-decease the account holder, and are a good way to ensure estate plans hold true while accounting for the potential future unavailability of the primary beneficiaries.
Ancillary Administration for Out-of-State Properties
The articles on this website assumes that the reader is domiciled in California, and treats of properties located in California.
Many people may also own properties located out of state, whether in a different state or in a different country.
Real properties, especially, are governed by the laws of the jurisdiction in which they are located. This means that a secondary probate may need to be opened in the jurisdiction in which those properties are located. These separate proceedings outside of California are referred to as ancillary administration.
This is where proper estate planning could have been handy.
There are ownership structures that would have effectively avoided multi-state probate proceedings, one of which is the establishment of a trust.
Unless these are done properly however, the only way that those real estate properties could be transferred would be through probate proceedings in the local court of jurisdiction. This means multiple proceedings, multiple legal costs and possibly even multi-state court battles.
Unfunded Trusts
The revocable living trust is one of the most effective tools of estate planning. For one thing, it avoids trust properties going into probate.
The difficulty is that while some people do the work of creating the trust, they never actually fund the trust.
That is, they don’t transfer the properties into the name of the trust.
For instance, a person who owns real estate may intend that property to be transferred to their revocable living trust, but at the moment they die, the title of the property still remains in their own name, rather than in the name of the trust, through its trustee. The living trust that was established therefore never actually fulfills the purpose for which it was intended. The real property still goes to probate.
This is yet another reason why it is so essential for people to seek the services of an estate planning attorney. A good attorney will make sure all the i’s are dotted and the t’s crossed, so that a person’s estate plan comes to fruition, rather than all of their assets going into accidentally probate.
The Not-Small Estate
One other area in which an estate plan may go into accidental probate is in the case of the Small Estate.
In California, if the assets of a decedent at the time of death does not exceed certain prescribed value thresholds, the assets are classified as a small estate and are eligible to avoid probate. The alternative method of transferring ownership becomes the Small Estate Affidavit.
But sometimes, certain overlooked assets, no matter how small, may push the gross value of the estate over the threshold. For instance:
- A bank account or insurance policy with no beneficiary designation
- Real property that was not transferred to a trust
- Real property whose fair market value appreciated prior to the decedent’s death
Once that threshold is reached, the assets are no longer considered a small estate, and a full probate proceeding is required.
It is therefore a good idea to be fully acquainted with the value of your total assets, and to structure ownership accordingly if avoidance of probate is preferred. Monitor the legal threshold for small estates in California – which changes every three years – and should the threshold be exceeded, to restructure and adjust accordingly.
The Attorney as Risk Manager and Advocate for your Estate Plan
Some people might view estate planning as a one-time thing. You draft your will, you structure your assets according to your wishes, establish a trust if desired. Then you can relax and rest assured that everything has been prepared just in case.
But estate planning, as can be seen from the examples above, is an ongoing process of risk management.
This is because things do change. Aside from changes in the family structure: births, deaths, marriages, divorce, birthdays, etc., wealth also fluctuates over time. You may go bankrupt or you may find yourself wealthier than you were when you started your business. Maybe you bought properties overseas, invested in stocks, gave valuable gifts to families for special events.
All of these need to be factored in for your living and constantly evolving estate plan.
An estate attorney’s services would prove invaluable here. They assist you in risk management and asset protection, while also staying on top of any legal or regulatory changes that might impact your plans. A worthwhile estate attorney will monitor things so that your properties don’t go into accidental probate.
An estate planning and probate attorney will be able to take a birds’ eye-view of all relevant factors and recommend the correct course of action – which assets should go into probate, which assets should be non-probate, and how creditors claims and potential disputes are to be handled.
***
Reach out to us now if you would like to have an audit of your current estate plan. We will help guide you through the nuances of the applicable laws and regulations and ensure that your intentions match your plans.