Probate: the process of identifying the rightful heirs and transferring the decedent’s property to them in a way that also protects creditors’ rights, involving the court system (not a legal definition).
Court involvement is needed whether there is a Will or not, if a person died owning real estate and/or assets valued at more than $50,000. The law has not caught up with technology. The use of this public process may put your beneficiaries at risk for exploitation and/or identity theft. So, yes, avoiding probate is a wise move, but there is a right way and wrong way to do it.
1 – DO NOT add one of your children as an OWNER to your bank account. If you own an account in joint tenancy with another person, that person gets the money when you die, without having to go through probate. If this is your spouse, fine. If it is not, be wary. The money becomes the asset of the other person at the time that you add his or her name. The money becomes vulnerable to that person’s creditors, divorce settlement, etc. If you think you have added someone to your bank account just to sign checks, double check with the bank to make sure they did not actually give the person ownership. It happens ALL THE TIME!
2 – DO NOT put your child’s name on your house with you. If you put your child’s name on your house,as a joint tenant, you may be creating a huge, ginormous tax issue (in addition to the same financial risks listed in Tip 1). Yes, when you die, your child gets the house without going through probate. But you may have saddled your child with TENS of THOUSANDS of dollars in unexpected, and avoidable, capital gains taxes. It happens ALL THE TIME!
3 – DO use a revocable living trust to avoid probate. You maintain control. You can change it anytime you want. It takes the place of a Will, where you still get to say who gets your assets when you die. Your beneficiaries get the tax benefits associated with waiting until you are gone to get their inheritance,and you have protected your beneficiaries from potential exploitation or identity theft, which is becoming a more real threat.