Many people want to avoid Probate Court oversight of the transfer of their estate. In Massachusetts, all the Probate Laws changed on April 2, 2012. Although the new probate laws were supposed to make the process easier, faster, and cheaper, it seems to have had the opposite result. I am sure that in a year or two the process will be much easier, but even so, many clients still will want to avoid Probate entirely.

The probate process does not have to be difficult or expensive, but for some clients, it is something they wish to avoid. “What is Probate?” (This was written in 2010, before the laws changed. I will be updating this next month.)

There are several categories of assets that will be transferred without the need for probate.

  1. Beneficiary Designations: These types of assets – IRAs, 401Ks, Life Insurance, Annuities, – will be given to the person or people designated on the account at the death of the account owner. There are two things to keep in mind when designating a beneficiaries: 1) Make sure you have designated BOTH primary and alternate beneficiaries; and 2) Make sure the designations reflect your actual distribution wishes. For example, if you want the account to be distributed to all of your children, make sure that they are all listed as beneficiaries. Particularly with retirement funds, there will be income tax consequences if one child is named, but then wants to share the funds with other siblings.
  2. Jointly Owned Assets: Any asset on which there is a joint owner will automatically belong to the survivor. For some married couples, this ease of transfer at the death of the first spouse makes sense. However, for single people, jointly owned assets may not reflect their distribution wishes. For example, if there are two children and one child is added on to bank accounts, that child will become the owner of any account on which they are named. It may be possible to overcome this presumption of ownership by designating the account as a “Convenience Account” at the bank, and by including a statement in your Will that these joint accounts were never intended to belong to the surviving owner.
  3. Create and FUND a Trust: By far, the best way to avoid having your estate go through the Probate process is to establish a trust. A trust replaces a Will as the primary after-death transfer document. BUT, the second step – after creating a trust – is to make sure that the proper assets are re-titled and placed into the trust. That step is called “funding the trust.”

Only those assets actually in the trust at the time of death pass without Probate. If an asset is not re-titled into the trust, it will have to go through Probate. Since most people want a trust to avoid Probate, the planning is incomplete without this final step.

How an asset gets placed into the trust depends on what it is. For example, re-titling a bank account can usually be done easily by going to the local branch and telling them you have created a trust. The bank may want a copy of the first and last page of the trust, but will then simply re-name the account. The account is now in the trust. For real estate, a new deed should be prepared transferring the property to the trustee of the trust. That deed is then recorded at the proper Registry of Deeds – and the real estate is in the trust.

As a general rule, retirement accounts should be left alone. Do not make the trust the beneficiary of retirement accounts without first consulting with your attorney and tax advisor.

 Additional Information:

Most Common Mistakes in Naming Beneficiaries, Wall Street Journal (2011)



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