“Probate avoidance” is a topic that is often discussed in terms of extremes.
At one extreme there are trust mills that peddle an exaggerated concern over “probate avoidance” in order to sell the next living trust (which should avoid probate). Often, these trust mills are financial advisors who are not licensed to practice law, and would never be able to represent a client in a probate proceeding. Therefore, they naturally steer a client in the direction of “probate avoidance”.
At the other extreme are advisors, often probate attorneys, who urge clients that they don’t need a Living Trust. Naturally, these attorneys are uncomfortable with drafting trusts and many of the tax and asset protection issues that are necessary to draft a trust. Because it is a specialized area of law, they often shy away from this entire body of law. Further, these attorneys would prefer the client sign only a Last Will and Testament so that they can obtain a probate fee after the client passes away.
The optimum is probably somewhere in the middle.
As discussed here[1], probate avoidance is not usually the primary concern in estate planning, but it can be an ancillary benefit.
Nevertheless, there are cases in which probate avoidance should be the primary (or a major) goal in your estate plan. Some of these cases are as follows:
- You own an interest in real estate in states other than Louisiana.
- You have a litigious heir, and you are concerned that he or she will challenge your Last Will and Testament.
- You have a strong desire that everything be done before your death, and you don’t want to leave your heirs with the headache of a probate proceeding.
- You desire privacy, and you don’t want others knowing about your assets.
Let’s address each of these in turn.
You should avoid probate if you own any interest in real estate in a state other than Louisiana.
In addition to your home in Louisiana, suppose you own a condo in Gulf Shores, Alabama, and 10 acres in Mississippi. Because you own real estate in three (3) states, your estate will have to go through three (3) probate proceedings. The first would be in Louisiana, your state of residence. The second and third will be conducted in Alabama and Mississippi as “ancillary probate proceedings.” This is because Louisiana’s real property laws do not extend to other states. It is state specific. In other words, your estate will have to hire three different attorneys, each licensed to practice law in their respective states, to represent you in a court proceeding in each state. While the proceedings in Mississippi and Alabama may be more condensed legal proceedings (because those are not your states of residence), it can nevertheless compound legal fees and costs significantly to hire three attorneys.
This can be avoided. You can transfer your real estate property to a Living Trust or a Limited Liability Company (“LLC”). If transferred to a Living Trust, you would have a beneficial interest in a trust rather than a direct interest in real estate. Similarly, if transferred to an LLC, you would have a membership interest (similar to stock in a corporation) in the LLC rather than a direct interest in real estate. These steps effectively convert you interests in real property in those other states to an interest that is either not subject to probate in Louisiana, or alternatively, is subject to only one probate in Louisiana.
You should avoid probate if you have a litigious heir, and you are concerned that he or she will challenge your Last Will and Testament.
In Louisiana, a Last Will and Testament can be challenged based upon an allegation that you, at the time you signed the Last Will and Testament, you either (1) lacked testamentary capacity; or (2) was subject to undue influence.
Although it is beyond the scope of this article, a “lack of testamentary capacity” generally means that at the time you signed your Will, you did not comprehend with enough specificity (or was so mentally impaired) that you did not understand what “stuff” (property) you had ownership to, and who would ordinarily get your “stuff” in the event of your death (assuming you did not execute a Will).
“Undue influence” means that you were so influenced or swayed by another person, that your wishes and desires were substituted for that of the other person. This can happen in the context of a person who is very suggestive and frail and who is being isolated from the family at large by another person, usually a trusted friend or family member.
Although it is usually an uphill battle for a person to prove lack of testamentary capacity and/or undue influence, these courtroom battles can be lengthy and costly. Your estate can be in a somewhat better position to mount a defense against the litigious heir if your estate does not go through the probate process at all.
You should avoid probate if you have a strong desire that everything be “completed” before your death, and you don’t want to leave your heirs with the headache of a probate proceeding.
I often get clients who have a strong desire to have their heirs (their surviving spouse or children) avoid a probate proceeding. Even if the client knows that their heirs are adults who have every ability to do this, they also understand that there are definite benefits to delivering everything to them a nice neat “package” and allowing them to avoid this process after they pass. A Living Trust, with an integrated estate plan can do this.
On the flip side, I often have clients come into my practice for a probate consultation, and when I ask them “what did your parent die with”, they have some ideas, but there are a lot of unknowns an unanswered questions. They are not certain of what their parent had or did not have at death. In other words, their parent did not at least sit down and write a list of all of the “stuff” belonging to him or her for ease of reference after death.
The bottom line is this. If you want a Living Trust in order to “collect” and identify all your stuff now, then great. A Living Trust and probate avoidance may be particularly important for you. But if you choose not to go that route, then at least have a list of the location of all of your “stuff” for your heirs that can be easily located by them after your passing. This list should include bank accounts, investment accounts, life insurance policies, burial policies, real estate, automobile and trailer titles, boat registrations, burial plots, and so on. Having this list handy can make it significantly easier for your heirs to probate your estate.
You should avoid probate if you desire privacy, and you don’t want others knowing about your assets.
Frankly, in my many years of practice, I have had only a handful of clients voice a desire for maximum privacy; putting privacy as a main driver of their estate plan. Nevertheless, this does occasionally occur. Other clients view privacy as an ancillary benefit to a Living Trust, if not the primary benefit. This may be an important consideration for you, especially since nearly all of your assets are usually publicly disclosed in the probate process.
Keep in mind that keeping things private does not include your real estate holdings. That is because public records of real estate ownership are readily available at your local Clerk of Court. But beyond real estate, a Living Trust can help keep your other assets private, including your holdings in bank and brokerage accounts, which would otherwise be publicly disclosed in the probate process.
For more on the probate process, go here.[2]