Avoiding Probate

By Livia DeMarchis, Esq.

When putting in place an estate plan, a main goal for most clients is avoiding the need for probate court administration of their assets on death. The probate court process can be time consuming and expensive, and it is open to more public review and scrutiny than the more private option of administering assets under a trust agreement. We often work with clients to make sure that their assets are titled to avoid probate. This can be done by titling assets in the name of a trust during a client’s lifetime, or by making sure assets are set up to automatically pass to intended beneficiaries by operation of law without court involvement, for example by using beneficiary designations or joint ownership with rights of survivorship. While clients often do a good job of identifying and retitling their real estate holdings and larger investment and bank accounts to avoid probate, we have noticed that some smaller assets consistently get missed and can end up unexpectedly triggering the need for probate court administration or additional transfer logistics on death. This article focuses on tips and tricks for probate avoidance for these less significant assets that can too often slip through the cracks. Please note that some rules vary from state to state, and this article is based on Vermont rules.

Tangible personal property includes all the physical possessions that you own and use in daily life. This encompasses household furniture and furnishings, clothing, jewelry, and collectables, as well as vehicles and other vessels. Tangible personal property also encompasses your digital devices and can be defined to include your digital assets (such as email accounts, digital music, digital artwork and videos, and online accounts). It would be impractical and likely impossible for anyone to itemize all their tangible personal property, and these items typically do not have recorded “title” that can be changed to transfer them into an estate planning trust to avoid probate. As such, it is important that a client’s estate plan include a blanket transfer document, often called a “Bill of Sale” or an “Assignment of Personal Property,” that broadly defines all a client’s tangible personal property and sweeps it all into his or her estate planning trust. Ideally, these documents are drafted to cover all tangible personal property currently owned by the client, or subsequently acquired by the client, regardless of what type or where it is located. The inclusion of a Bill of Sale or an Assignment of Personal Property can vastly simplify asset administration on death because it should prevent these tangible assets, many of which can have great sentimental and/or monetary value, from being subject to probate court administration.

While motor vehicles are often swept up in the definition of tangible personal property, there are more efficient and precise ways to avoid probate administration of vehicles, in particular. For married couples, it often makes sense for spouses to own a vehicle through a joint tenancy with rights of survivorship in the first instance. On the first death, the deceased owner’s interest in the vehicle ceases to exist, and the surviving spouse becomes sole owner of the vehicle by operation of law. After the first death, the surviving spouse should add a “Transfer on Death” (or “TOD”) title brand to the vehicle title, which allows the surviving owner to designate a beneficiary who will automatically receive ownership of the vehicle upon the owner’s death, without the need for probate. A TOD beneficiary designation is probably the best way to transfer any vehicle on death if the current owner owns the vehicle individually. A TOD designation is not permitted when the vehicle is co-owned in any way. When a TOD beneficiary designation is added, the existing owner maintains all rights of ownership and transfer rights during their lifetime. In other words, they can change the TOD beneficiary designation, or sell or otherwise transfer the vehicle, during their lifetime without notifying or needing the consent of the named TOD beneficiary. 

Another type of asset that can trigger a probate court administration is a small checking account. Clients will often have a checking account at a financial institution other than Trust Company of Vermont in which they do not maintain a large balance. Married couples will often own such accounts jointly with rights of survivorship, which should work smoothly on the first death because the decedent’s interest evaporates, and the survivor becomes sole account owner. Owners of a joint bank account can also add a Transfer on Death (sometimes also called a “Pay on Death” or “POD”) beneficiary designation to the account to address the possibility of simultaneous death and to address probate avoidance after the first death. If not added before, it is very important after the first death of a spouse that the surviving spouse either retitle a formerly joint account in the name of his or her own estate planning trust or add a TOD or POD beneficiary designation to the account. Any title changes on a bank account, or any additions of a TOD or POD beneficiary designation must be done directly at the bank where the account is held. If the account is being retitled in trust, the bank will want to see at least a copy of a Certificate of Trust, certifying the trust’s existence and summarizing certain key trust terms that are relevant for account ownership purposes. Sometimes, banks will require that a copy of the entire trust agreement be presented to retitle an account in trust. Each institution is a bit different, and clients need to assess the pros and cons of divulging their trust terms in order to retitle an account in trust. If a banking institution is being uncooperative when a request to retitle an account in trust is presented, or if the institution requires that a new account be opened and new checks be acquired to move assets into the name of a trust, clients should consider simply naming their trust as a TOD or POD beneficiary on the account. Clients may also prefer naming one or more individuals as the TOD or POD beneficiaries on their accounts. When a TOD or POD beneficiary is listed on an account, upon receipt of the account owner’s death certificate, the bank should automatically transfer the account into the beneficiary’s name, without the need for probate.

Along the same lines as smaller checking accounts, safe deposit boxes can sometimes be a forgotten asset that require probate administration. Ideally, safe deposit boxes will be titled in the name of a client’s estate planning trust or co-owned by the separate trusts established for each spouse in a married couple. When a safe deposit box is owned in trust, any successor trustee should be able to access the box by presenting identification and a Certificate of Trust authorizing them to act as trustee. Again, some banks may require a copy of the whole trust agreement. 

One final category of asset that can unexpectedly trigger the need for probate court administration is a refund from a nursing home or senior living community. When someone enters such an establishment, it is important to understand whether and how any upfront investment in the facility will be refunded. If there will be a buy-back or refund of some kind when the resident leaves or dies, it is advisable to ask whether this can be returned to the resident’s estate planning trust, rather than paid to the resident’s estate. 

We are always happy at Trust Company of Vermont to assist with any of our clients’ efforts to retitle assets to avoid the need for probate court administration. Please reach out with any questions about the smaller assets mentioned in the above, or about more significant retitling or beneficiary work involving real estate, investment accounts, retirement accounts, or other items.