Probate is a legal process where a deceased person's will is submitted to a probate court. The probate court supervises the collection of assets, payments to creditors and distribution of assets in accordance with the terms of the will and applicable law. A common motivation for avoiding probate is the fear that probate fees and costs may significantly reduce the assets left to the deceased's heirs. Several mechanisms are available to avoid probate. All of these tools work by reducing or eliminating assets held by the deceased's estate at the time of death. If a person's estate at death has no assets or assets below the applicable state threshold for probate, it is not required.
Create a trust to hold assets. A trust is a legal entity separate from its creator (also called the settlor or truster). Property transferred to a trust prior to death is not a part of a deceased's estate. Several different types of trusts can be created. Living trusts are popular because they allow the truster to retain control over the trust assets until death.
Give property away before dying instead of after death via a will. Advance planning is particularly important for gifting because the Internal Revenue Code allows gifts up to a certain amount (defined by the Code) per recipient per year without incurring gift taxes or reducing the unified estate tax credit of the giver. Gifts can have tax consequences, but the gifted assets avoid probate.
Transfer title to real estate into joint tenancy with rights of survivorship. The surviving owner will automatically succeed to the deceased's interest in the property at death. Married couples frequently hold title to their home as joint tenants with rights of survivorship or as community property with rights of survivorship (in community property states).
Designate a beneficiary to receive certain types of assets by contract. Certain types of assets allow the owner to name a beneficiary in advance who will automatically receive title by operation of the contract upon the owner's death. Life insurance, 401(k) and other retirement plans, and payable-on-death bank accounts are examples of this type of transfer.
Record a beneficiary deed for real estate. Arizona and some other states permit a property owner to record an instrument known as a beneficiary deed. The owner retains full ownership and control over the property until death. When the owner dies, title to the real estate automatically transfers to the named recipient.
Spend it all. Consuming all assets before dying means nothing will be left to probate.
Seek professional legal and tax advice to choose appropriate probate-avoiding methods and implement them properly.