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We have heard people tell us for decades that they want to “avoid probate.” They say it as if they want to avoid cancer. Most people have no idea what it is that they think they should avoid. Fewer people know that the “probate” concept may be their best alternative. This article shines light on the “probate” landscape.
A simple Indiana “probate” definition is the process in which a court with probate jurisdiction (often called “probate court”) approves the admission of a deceased person’s last will and testament to the county will record. Most people think of “probate” as the more elaborate process in which the court appoints an executor (or administrator if there is no will – “personal representative” includes “executor” and “administrator”), who gathers and inventories assets, publishes notice of administration in the newspaper, pays creditors, distributes the assets to distributees, and reports all of those activities to the court.
An Indiana probate court normally has jurisdiction (authority) over assets of which a deceased person was the sole owner, and people often refer to such assets as “probate assets.” “Nonprobate assets” are assets that a deceased person transferred to a trust (see Trustworthy Trusts?) or owned in some way, such as in a joint bank account, so that the ownership passed automatically to someone else having survivorship rights. A husband and wife often own almost all of their assets together with survivorship rights or have each other as beneficiaries of life insurance policies, retirement plans, and other assets, so most of their assets are nonprobate assets.
Nonprobate asset ownership transfers to co-owners or named beneficiaries automatically under the laws governing such ownership. An Indiana probate court does not normally have jurisdiction over because the law already provides a process for asset transfer that does not require court involvement.
Nonprobate asset ownership systems include joint asset ownership with rights of survivorship, pay on death (POD) accounts, transfer on death (TOD) beneficiary designations for real estate and personal property, and beneficiary provisions in life insurance policies, annuities, and retirement plans. It is so easy to set up nonprobate asset ownership that probate administration is increasingly rare.
It is possible sometimes to bypass probate administration even when a decedent leaves probate assets. The Indiana Probate Code allows a decedent’s beneficiaries to acquire the decedent’s bank accounts and other monetary assets without opening probate estate administration if the total value of those assets remaining after payment of certain expenses is less than $50,000. In some cases, it is possible to transfer probate real estate worth hundreds of thousands or millions of dollars without probate administration.
A person’s hasty efforts to avoid probate can undermine an estate plan. A deceased person’s will only controls the distribution of assets after the person’s death if it is admitted to probate and the decedent’s asset ownership system allows the will to control them. Nonprobate assets pass to beneficiaries regardless of a will’s distribution provisions, so it is possible for a decedent’s nonprobate assets to bypass the will’s distribution provisions and render the will useless.
It is possible to avoid probate and satisfy important estate planning goals in a well-coordinated estate plan. One of the most powerful asset protection systems for married couples uses nonprobate assets and a sophisticated last will and testament containing custom-designed trust language for the surviving spouse. Such a plan steers directly toward “probate,” as the readers of this article now understand that term, and the decedent’s will can often protect most of the couple’s assets from the surviving spouse’s long-term care costs and other financial threats that simple probate avoidance could never accomplish.
Probate avoidance can be a useful part of a wise estate planning attorney’s estate planning strategy. Probate avoidance for the sake of probate avoidance can be as foolish as driving on a moonless night without a destination and without headlights. The difference between wise and foolish probate avoidance depends on whether a skillful estate planning attorney is developing the plan.
Jeff R. Hawkins and Jennifer J. Hawkins are Trust & Estate Specialty Board Certified Indiana Trust & Estate Lawyers and active members of the Indiana State Bar Association and National Academy of Elder Law Attorneys. Both lawyers are admitted to practice law in Indiana, and Jeff Hawkins is admitted to practice law in Illinois. Jeff is also a registered civil mediator, a Fellow of the American College of Trust and Estate Counsel and the Indiana Bar Foundation; a member of the Illinois State Bar Association and the Indiana Association of Mediators; and he was the 2014-15 President of the Indiana State Bar Association.
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