Probate is the legal process of handling a person’s assets and liabilities after they die. It’s a way of figuring out what liabilities to pay. Then it transfers assets and property to the decedent’s heirs and beneficiaries. Keep reading to learn seven ways to avoid probate in Arizona.
Generally, your assets will go through the Arizona probate system when:
- You own assets in your name alone, and
- You have not designated a beneficiary for those assets.
Also, any property you own in another state will need to go through that state’s probate system.
Many people believe that their family will avoid probate if they have a Last Will and Testament. That’s not true. A Will provides instructions for the distribution of assets during a Probate. To become effective, a Will must be accepted by the probate court. An informal probate administration is typically a smooth process. During an informal probate the parties do not appear before a Judge. Yet, some people prefer to take steps during their lifetime to avoid probate.
Are you interested in avoiding probate? If so, here are 7 ways that may permit your family to avoid probate following your passing:
Establish a Living Trust
One of the ways to avoid probate in Arizona is if your home is owned by your living trust. The reason is that the living trust owns the property, and not you personally. Your named successor trustee is in charge. If the successor trustee decides to sell the house, they can accept an offer and sign documents needed to close escrow without any involvement by the probate court.
A living trust can provide you with a flexible way to start the transfer of property and assets before your death. As the creator of a Trust, you still maintain full ownership of their assets during your lifetime. It also establishes a path for your loved ones to distribute your money and property after your passing. With a trust, there is no Court involvement.
With a living trust, you are completely in control during your lifetime. You manage everything like you currently do. That’s because you are the trustee. You also have the benefit of everything, like you currently do. That’s because you are the beneficiary.
Be sure to name a successor trustee
But with a living trust, someone can take over in case you become incapacitated or die. For this to happen, you need to name successor trustees. Name at least one successor trustees. Two is better. The successor trustees will continue to manage the trust in the event you become unable to do so.
Specify how you want your assets distributed
With a trust, you also need to plan for distribution of the assets upon your death. Here’s a big benefit of trusts. You can specify HOW your assets are distributed. For example, if your children are minors, do you want them getting their money at age 18, or when they are more mature? If your child is not good with money, do you want some safeguards in place so they don’t blow their inheritance? You can specify such safeguards in a trust.
Be sure to fund your trust
Following the creation of a trust, you will need to fund your assets to the trust. A trust will not avoid probate unless you fund it. There are a few key exceptions to this rule. For instance, a retirement plan with a named beneficiary does not go through probate. Neither does a bank account with a pay on death beneficiary.
Joint Tenancy doesn’t always avoid probate, but it can if certain conditions are met. If the property is owned in joint tenancy, then the question is whether all joint tenants have passed away. Probate would be necessary if ALL joint tenants have passed away. Otherwise, the property passes to the next joint tenant who is alive.
For example, if mom and dad vested their home as joint tenants and dad dies first, probate is not necessary. Instead, the surviving tenant would record an Affidavit of Death of a Joint Tenant. The surviving tenant would also record a certified death certificate. Then, when mom dies, a probate would be needed.
With joint tenancy, the owners don’t need to be related to one another. It can include more than two people.
When you own property with rights of survivorship, each party owns an equal and undivided present right in the property. Upon the death of one of the joint owners, his or her share will automatically pass to the surviving party. As such, the property should not be subject to probate.
Community Property with Right of Survivorship
In Arizona, a husband and wife can own their home as community property with right of survivorship. Property owned in this form retains all the features of community property. But the property passes on death to the survivor.
If mom and dad have their home vested as community property with right of survivorship, then upon the death of the first spouse, the surviving spouse automatically gets the house. But, upon the death of the last surviving spouse, a probate is necessary.
There is a tax advantage to this form of ownership. The surviving tenant receives a stepped-up basis (which is advantageous) on the entire property. Speak to an estate planning lawyer or accountant if you’re interested in learning more.
Revocable Beneficiary Deeds
This method is sometimes called “a poor man’s trust.” Here’s how it works. The homeowner simply signs a Beneficiary Deed. Then when the homeowner passes away, the beneficiary automatically is entitled to the house. There is no need for any sort of probate proceeding.
A Beneficiary Deed seems very simple. Yet, you can create unintended problems for your loved ones. It’s easy to make a mistake with a beneficiary deed. For example, sometimes people name multiple beneficiaries on their house. Naming children as beneficiaries is common. But then the new owners can get into an argument over what to do with the house. One child might want to move into the house. Another wants to sell it and get the cash. The law says that any owner can go to court and insist on the house being sold. However, that takes time and money in legal fees. Yes, probate court was avoided. But now the family is in civil court fighting with each other.
Speak with a qualified estate planning attorney to determine if a Beneficiary Deed is the best course of action for you and your family.
Make Accounts Payable on Death or Transfer of Death
A further option is adding a “Payable on Death” (POD) or Transfer on Death (TOD) designation on assets. You can do this to bank accounts, brokerage accounts, and vehicles. Adding a POD or TOD designation is sometimes referred to as a beneficiary designation. To add a beneficiary designation to a financial account held at a bank or brokerage house you need to visit your financial institution. They will help you complete a POD/TOD designation form. Each financial institution will have its own separate form.
On the POD/TOD designation form, you name your beneficiary or beneficiaries. You also say what share, or percentage, you want each beneficiary to receive. In most cases you will be able to name secondary beneficiaries in the event your primary beneficiary dies before you. You can name one individual or many individuals as the beneficiary. You can also name your trust, a company, or a charitable organization as your beneficiary. The named beneficiary will be entitled to access the account upon your death. The asset should not be subject to a probate.
The Arizona Motor Vehicle Division has a Beneficiary Designation Form for vehicles. To use it, you complete and staple the form to your original Vehicle Title. The Beneficiary Designation Form will transfer title to your beneficiary upon your death.
Provisions for Small Estates
You may not want to spend the money to create a living trust. In that case, you can make the process less costly and more efficient. Do that by taking advantage of Arizona’s small estate procedures. Arizona allows for various simplified procedures for smaller estates in these cases:
- If the equity in your real property is under $100,000.00.
- If the total value of personal property (including bank accounts and vehicles) less than $75,000.00.
- If the total value of all assets, after all reasonable funeral expenses, final medical expenses and the costs of a probate administration, is less than $37,000.00.
The small estate procedures will not necessarily mean your final wishes are honored. Without a valid Will, the distribution of assets will still be determined by the Arizona intestate statutes. If that is not what you want, set forth your final wishes about the distribution of your assets are set forth in a Last Will and Testament.
Give Your Property Away
If you transfer ownership of an asset to someone else during your lifetime, that property won’t be part of your estate when you die. It wouldn’t be part of the probate process as your chosen heir would already have ownership of the asset.
But depending on the situation, you may have to pay a gift tax, which can be expensive.
Our Estate Planning Lawyers Can Help You Today
Regardless of the size of your estate, our estate planning and estate litigation attorneys are here to help. We have extensive knowledge and experience in dealing with matters in the probate court. We are also familiar with the laws that govern these proceedings.
Drafting a will or trust that will stand up in court requires diligence and skill. Our attorneys and staff will take the time to truly listen to what is important to you. We will use our legal skills to help to protect your rights and interests. Then we will take the necessary steps to ensure your wishes are carried out.