The Law after Death: Probate
Our clients frequently ask us what will happen to their house or their other property after they die. The answer usually depends upon a variety of factors, but the conversation always revolves around probate.
What Is Probate?
Probate is a mandatory court administration process in which the state determines what you owned when you died, who gets it, and who is in charge of distributing it. Probate can be time-consuming and expensive because it usually requires following strict procedures and complying with notice periods and filing requirements. Your estate administrator also must usually hire an attorney, an accountant, an appraiser, and possibly other specialists. These expenses are paid out of the estate of the decedent. Most estate planning attorneys (and anyone who has had the misfortune of having to go through probate proceedings) recommend that avoiding probate is usually the best course of action.
When Is Probate Required?
In Utah, probate is required for all estates in which the decedent owned more than $100,000 worth of assets in their individual name at the time of death, or if the decedent held real property in his or her individual name (regardless of the value of the property). However, there are some exceptions. Real property held in joint tenancy, life insurance proceeds, retirement accounts, and payable on death accounts, for example, does not have to pass through probate.
Therefore, in order to avoid probate in Utah, when you die, you must: 1) Not hold any real property in your name (unless it is joint tenancy property), and 2) Own less than $100,000 worth of assets in your name. There is a very effective way to accomplish this while still being able to use and enjoy your assets as if you held them individually: using a revocable trust.
What Is a Revocable Trust?
A revocable trust is an entity that can hold property. Because it is an entity, it can survive the life of the individual who created it (the Grantor). If you set up a revocable trust and title your assets in the name of the trust, rather than in your own name, you do not hold those assets individually; thus, those assets will not need to pass through probate when you die. Even better, as trustee of your own revocable trust, you can use those assets during your life at your own discretion just as if you owned them individually. A trust is considered the most effective way to avoid probate and effectively distribute property to your loved ones when you die.
How NOT to Avoid Probate
Be advised! Some people have tried methods to avoid probate and have gotten into trouble or have ended up paying much more than they would have spent on setting up and funding a trust. Here are two big “don’ts” with regard to avoiding probate.
1. Don’t just neglect to file probate and hope that everything will work out. This is one of the worst mistakes you could make. A colleague of mine had a client who did just that. Years later, she tried to sell the house she “inherited” from her father. However, because she never filed for probate, she never obtained clear title to the house even though the father left it to her in his will. Because she had no clear title, she could not sell the house. And because more than three years had passed since her father died (the deadline for probating an estate in Utah), the court required there to be a “Determination of heirs” proceeding. In this proceeding, the court determined who would have been the intestate heirs of the father, despite the will. The property was then distributed equally between the client and her siblings, despite the fact that her father wanted her to get the entire house.
2. Don’t put your children on the title to your house or other real property. You may be tempted to name your children as joint tenants on the property so that the property will pass to them free of probate. This is ill advised, however, because such a transaction can have undesirable capital gains or gift tax consequences. Even worse, what if your children have creditors after them? Your child’s creditor could attach a judgment lien to your home if your child is named as an owner of the property. Also, if your child has a disability, the home could be considered an “available asset,” which could disqualify him or her for government benefits, such as Medicaid.
How to Set Up a Revocable Trust
Probate is usually best avoided by implementing a revocable trust. When setting up your trust, be sure you receive initial counseling, a plan drafted to suit your needs, review and revision of the plan to ensure it is appropriate, and finalization of the plan. Finalization should include guidance in implementation and transferring of assets.
The Salt Lake County law firm Allegis Law, PLLC dedicates focuses on estate planning, probate, and family business issues. For a free initial consultation with one of Allegis Law’s attorneys about your own Revocable Trust, call (801) 938-4035.
By Matthew Newbold, J.D.