Hardly a day goes by that someone doesn't ask us whether they need to probate a deceased loved one's estate. So when is probate necessary?
When you hold title to (i.e., own) an asset, you can generally only lose title in two ways: by inter vivos (literally, "between the living) gift or by court order. By definition, you can only make an inter vivos gift while you are alive. Therefore, once you die, the only way to transfer title is by court order. That (among other things) is the basic role of the probate process.
In other words, if a loved one dies owning property in his or her individual name, that property generally must pass through probate before you can legally obtain title (ownership) — even if the loved one's Last Will and Testament says that you get everything! That said, there are certain circumstances in which an asset "owned" by the decedent is not subject to probate:
1. The asset is owned by a Living Trust.
Many people believe that having a Last Will and Testament means probate will not be necessary. Those people are generally incorrect. Why? Because a Will makes a testamentary (after-death) gift. Remember: You can generally only lose title by inter vivos gift or by court order. A testamentary gift does not fit into either of those categories, which means a probate court order will be necessary.
During your lifetime, however, you can establish a Living Trust. The benefit of a trust comes by transferring assets from you, as an individual, to you as the trustee of your trust. Although you still "own" and control these assets during your life, the trust operates like a separate entity for probate purposes. After your death, the trust lives on and can transfer assets just as you could while you were living.
Think of a trust as a box: during your lifetime, you put your "stuff" inside the box (i.e., retitle assets in the name of the trust); after your death, everything in the box (i.e., everything owned by the trust) avoids probate.
(Read more on the differences between a Will and a Trust.)
2. There is a pay-on-death beneficiary.
Certain assets allow you to name an individual or entity to receive that asset after your death. Making a beneficiary designation is akin to entering into a contract between you and the institution that holds the asset. Because that contract designates who will receive the asset after your death, the property does not need to pass through probate in order to transfer title.
Pay-on-death beneficiary designations are commonly seen on insurance policies, bank accounts, IRAs, and other financial assets, as well as transfer-on-death-deeds. These assets are considered "non-probate" property and can be transferred outside the probate process.
3. There is a surviving joint tenant.
Joint tenancy is a type of ownership by two or more people in which each joint tenant owns an undivided interest in the whole of the property. If there are three joint tenants (each owning an undivided one-third interest) and one dies, then each of the surviving joint tenants would own an undivided one-half interest in the property. If there are two joint tenants and one dies, the survivor would own the whole of the property.
For this reason, joint tenancy has been called "the poor man’s will" because it can effectively avoid probate on the death of the first joint tenant. Although property with a surviving joint tenant may not need to pass through probate, the surviving tenant may have to file an affidavit (along with a death certificate for the deceased tenant) before he can transfer or encumber the property.
Talk to an attorney to see if probate is necessary.
Probate can be a complicated process. There are numerous exceptions to these general rules, and a variety of circumstances can affect whether an asset must pass through probate. To visit with a qualified attorney about whether probate is necessary or advisable, contact the Oklahoma City probate attorneys at Postic & Bates for a free, no-obligation consultation.
[As with all our posts, the contents of this article do not constitute legal advice and are subject to our site-wide disclaimer.]