7 Ways to Keep Your Estate from Landing in Probate

Losing a loved one is never easy, and settling their estate can feel like a daunting task. After my grandfather passed away nearly a year ago, I found myself in the midst of the probate process, working alongside my father to manage his estate.

It’s been a journey filled with both lessons and challenges and today, I want to share some key takeaways with you to help avoid or simplify the probate process in Connecticut.

My Grandfather’s Legacy

To understand his perspective, let me share a little about my grandfather. He grew up during the Great Depression, a time that instilled a deep sense of frugality. He didn’t want to spend a dime more than necessary—whether on things big or small.

One memorable example of this was when he bought his last property: a condo. When purchasing real estate, one typically gets title insurance to protect against issues with property ownership.

However, my grandfather didn’t want to pay for it. He felt that since he was paying cash for the property, why should he need insurance? We went back and forth about it, and eventually, I convinced him that it was in his best interest to get the insurance. This incident exemplified his mindset and approach toward money.

I tell you this story because, while my grandfather's approach worked for him in life, it ended up complicating things when it came time to settle his estate.

Tip #1: Give Things Away While You’re Still Here

This is one of the simplest ways to reduce the complexity of your estate: give assets away while you're alive. The less you leave behind, the less there is to deal with during probate, which can lead to lower costs and fewer complications.

In Connecticut, probate fees are based on the value of the estate, so the larger the estate, the higher the fees.

The IRS allows you to gift up to:

• $18,000 per person per year

• And the federal gift tax exemption is more than $13 million

You should still report the gifts on your tax returns, but you won’t owe any taxes unless your total gifts exceed $13 million over your lifetime.

There’s been much debate on social media about the benefits of gifting assets during your lifetime. Many people argue that giving money to children or family members while they can truly use it—such as when they are buying a house, starting a business, or raising a family—can make a bigger impact than waiting to pass it down later.

Tip #2: Own Real Estate Jointly

If you own real estate, one of the easiest ways to avoid it going through probate is by having it owned jointly with another person. This is especially useful when you own property with a spouse or family member.

If you pass away and your real estate is solely in your name, it usually has to go through probate. But if you add a joint tenant with rights of survivorship, the property automatically goes to that person upon your death, bypassing the probate process.

When creating a joint tenancy with rights of survivorship, it’s important to file an updated deed on your property. This is something you can typically do with the help of a lawyer or by going to your local town hall.

The only downside is that if you later want to sell the property, the joint tenant would need to sign off on the sale. This can cause issues if there are disagreements down the line, but it does make the probate process much easier for your heirs.

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Tip #3: Joint Ownership for Non-Real Estate Assets

While many people think about joint ownership in the context of real estate, you can also apply this strategy to other types of assets like bank accounts, investment accounts, stocks, and mutual funds.

Adding someone as a joint tenant on these types of accounts can streamline the probate process and make it easier for your loved ones to inherit your assets.

This approach works especially well if you're passing assets to your spouse. If you want them to inherit the account upon your passing, all they have to do is contact the financial institution, submit some paperwork, and the asset will be transferred into their name.

This eliminates the need for probate, making the settlement of your estate a lot smoother.

However, there is a key downside to consider. When you add someone as a joint tenant, that person has full access to the account while you're alive.

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Tip #4: Use Payable on Death (POD) or Transfer on Death (TOD) Beneficiaries

For a solution that offers more control during your lifetime, you might want to consider using a Payable on Death (POD) or Transfer on Death (TOD) designation for your accounts. With this setup, you add a beneficiary to your accounts, but they don’t have access to the funds while you’re alive. They can't add or remove money from the account.

However, upon your death, they will be able to access the assets once they go through a process with the financial institution—usually involving providing a death certificate and completing some paperwork.

You can set this up with bank accounts, investment accounts, stocks, bonds, and many other financial assets.

Many financial institutions, including Charles Schwab and Fidelity, offer POD and TOD options, and some even allow you to set them up online. It’s a simple way to simplify the settlement of your estate without going through probate.

Tip #5: Ensure Beneficiaries Are Designated on Retirement Accounts, Life Insurance, and Annuities

A simple yet crucial step in estate planning is making sure you’ve named beneficiaries on your retirement accounts, life insurance policies, and annuities. You might be surprised how many people forget to update or add beneficiaries to these accounts, leaving their loved ones with unnecessary complications when they pass.

When I meet with clients, I always recommend reviewing the beneficiary designations once or twice a year. It’s important not only to have a primary beneficiary but also to add a contingent beneficiary in case something happens to your primary choice.

If you're married, your spouse will likely be your primary beneficiary but consider naming your children, grandchildren, or close family and friends as secondary or contingent beneficiaries.

This step can save your heirs from going through probate, ensuring that your assets are transferred according to your wishes. If you haven’t done this recently, now is the time to double-check and make sure everything is up to date.

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Tip #6: Use Transfer on Death (TOD) for Vehicles

When thinking about your estate, don't forget about your vehicles! While it’s common to consider real estate and bank accounts in estate planning, many people overlook the transfer of ownership of their cars and other vehicles.

In some states, you can designate a Transfer on Death (TOD) beneficiary for your motor vehicles, which simplifies the inheritance process.

Around 20 states offer this option, so if yours does, consider setting this up. It’s an easy way to ensure your vehicles go to the right person without going through probate.

Tip #7: Consider Creating a Living Trust

One of the most effective ways to simplify the settlement of your estate and potentially avoid probate altogether is by creating a revocable living trust. While it might not completely eliminate probate in all states (like in Connecticut), it can definitely streamline the process.

A living trust allows you to specify how your assets will be distributed and who will manage them after your death. You can also designate how your beneficiaries will receive their inheritance — all at once, or in installments — and even name a trustee to oversee the trust if you want someone else to manage the funds for your minor children or someone who’s not financially responsible.

While you can create a trust online for a few hundred dollars, working with an attorney can provide personalized legal advice, especially if your estate is complex.

Drafting the trust is just the first step — once it’s created, you must take the time to transfer your assets into the trust, such as bank accounts, real estate, and non-retirement investment accounts.

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Closing Thoughts

These seven tips are just a few ways you can simplify the settlement of your estate and potentially avoid the lengthy and expensive probate process. However, keep in mind that probate laws vary by state. Even if you’ve taken all the right steps—like naming beneficiaries, joint tenants, or creating a living trust—some states require that probate still be filed to officially settle your estate. So, it’s essential to understand your state’s probate rules to ensure that your assets are distributed smoothly.

By following these strategies, you’ll help your loved ones avoid the hassle of probate, reduce the time it takes to settle your estate and make the process much easier overall.

If you have a question or topic that you’d like to have considered for a future episode/blog post, you can request it by going to www.retirewithryan.com and clicking on ask a question. 

As always, have a great day, a better week, and I look forward to talking with you on the next blog post, podcast, YouTube video, or wherever we have the pleasure of connecting!

Written by Ryan Morrissey

Founder & CEO of Morrissey Wealth Management

Host of the Retire with Ryan Podcast