A Closer Look at Estate Planning Tactics for Avoiding Probate

While the overarching objectives of estate planning are minimizing estate tax liability and ensuring assets are distributed according to a person's exact wishes, there are other considerations that will undoubtedly factor into a person's decisions concerning the disposition of their assets.

Indeed, one of the primary concerns for many people is avoiding the probate process, as they may see it as taking both time and money, and perhaps serving to needlessly prolong the mourning process for their family and friends.

In recognition of this reality, today's post, the first in an ongoing series, will start examining some of the estate planning strategies that can be undertaken as a means of obviating the need for formal probate administration.

Joint tenancy

In general, both personal property (bank accounts, certificates of deposit, etc.) and real property (homes, land, etc.) can be held by two or more people via joint tenancy. What this essentially means is that the ownership interest of one joint tenant automatically passes to the other surviving joint tenants upon death.

By way of example, consider 10 acres of land owned by Person 1 and Person 2 as joint tenants. Person 2's passes away suddenly and, as a result, the 10 acres are now owned solely by Person 1 with no need for the probate court to address the matter.

While owning property as joint tenants is an effective probate avoidance tactic, it's important to understand that it's not without its limitations:

  • Joint tenancy means reduced control of the asset. In the foregoing example, (presuming Person 2 is alive), both parties would have to consent to any sale of the land.
  • Joint tenancy means potentially exposing the asset to the creditors of other joint tenants. In the foregoing example, (presuming Person 2 is alive), the land could be subject to a lien for Person 1's failure to pay child support.
  • Joint tenancy means potentially undesirable tax consequences. In the foregoing example, (presuming Person 2 is alive), both parties may see a reduced capital gains exclusion if they decide to sell the land.

We'll continue discussing estate planning strategies to help avoid probate in future posts.

In the meantime, consider speaking with an experienced legal professional if you have any questions or concerns relating to estate planning or probate administration.