NY Probate Avoidance

New York lawyer Robert Friedman discusses NY probate avoidance in this video to help residents learn what assets can help avoid probate.

Question:

What assets avoid New York probate?

Answer:

There are many assets that do not pass through this probate process and avoid probate. As you can see, things can get very complicated sometimes with wills. There are a number of ways that your property can pass upon your death without going through probate. When people call me about probating an estate, I ask is if there were any assets that were in the person’s name alone. Those are really the only assets that are going to pass through probate, if they didn’t have beneficiaries and weren’t jointly owned. Here are some examples.

Life insurance, in most cases, does not go through the probate process. It goes to the beneficiaries named in your will in your life insurance policy. That’s an important reason to update your life insurance beneficiaries because we have some people that name their mother in the 1950s as their beneficiary and their mother is no longer living. In that case, the life insurance is payable to your estate. If all your beneficiaries and contingent beneficiaries are deceased, it is payable to your estate. Life insurance may or may not be a probate asset.

You can set up uniform transfers to minor acts accounts for your children and grandchildren. If you set those up, those do not go through probate. US savings bonds might not go through probate if you have joint owners or if you have those payable on death. As of about 15 or 20 years ago, your investment accounts, your stock accounts, could be in transfer on death. You can designate who you want to be the beneficiaries of your investment accounts.

Your IRAs and 401Ks do not go through probate, as long as you designate who your beneficiaries are. There is an advantage to that because then it can be rolled over into your beneficiaries’ own IRAs and 401Ks. You can also use your 401Ks as vehicles. If you have set up your 401Ks as self-directed, you can use the 401Ks to purchase real estate. If you have annuities, and if you have beneficiaries in your annuities, those will pass without probate.

Joint bank accounts are a problem. Most jointly owned properties avoid probate, except checking accounts that are called convenience checking accounts. What are convenience checking accounts? There’s really no straight definition for them. Sometimes convenience bank accounts are determined when you open the account up, and you add your son or daughter so they can pay your bills and sign your checks for you. Other times, convenience checking accounts come about just by circumstances, by proving that it’s your money and you added your son or daughter on there as a convenience.

Why the difference? What’s the big deal? There’s been hundreds of lawsuits over convenience checking accounts. When you pass away, the joint owner has automatic access to that, but if it’s a convenience checking account, unlike other types of accounts, they should be administered through what your will says. It should be turned over to the estate. It can result in quite a bit of litigation. An alternative to that would be to add someone to your account as power of attorney. Power of attorney ceases to be in existence upon your death if you don’t want that person to have access to your account upon your death. Powers of attorney are valid until they’re terminated, or they automatically terminate upon your death.

Unlike these convenience accounts you can set up your bank account to be in trust for someone, payable on death to someone, or they can also transfer it on death. Those completely avoid probate. You have control over your account, but you can say it’s in trust for someone or it will be payable on death to someone.

A common one is with an automobile or bank account. You can transfer one automobile without probate up to $25,000 in value with a death certificate and DMV Forms 349 or 349.1, depending on what your relationship is.

Another way to avoid probate is to just give things away during your lifetime. If you want to maintain some sort of control rather than give it outright, you may want to set it up as a living or intervivos trust. Suze Orman says everyone needs a trust. But not necessarily; it depends on your circumstances. There are certain assets you cannot put into the trust. A living trust is an agreement that you sign during your lifetime to place your assets in the name of this trust and that avoids probate because the trust has provisions that state what happens to your assets upon your death.

Living trusts can be irrevocable or revokable. People that want to preserve their assets if they have to go in a nursing home have to have an irrevocable trust. You have to give up control. People are commonly using irrevocable trusts to protect their assets if they go into a nursing home but there are tradeoffs. You have to give up control. You cannot be the trustees of your own trust if it’s irrevocable. It avoids probate. You will not have access to the principle. You only have access to the income of the trust, like dividends and interests. Many people set up irrevocable trusts just to protect their house, but there are disadvantages to transferring your house using a life estate deed. Some people are just concerned about avoiding probate and not about preserving their assets if they go into a nursing home, but the irrevocable and the revokable trust just avoid probate.

If you own corporation stock jointly with someone, that can avoid probate. You can set up limited liability companies. It’s becoming quite a common use for vacation real estate. You can manage it for multiple generations if you want to have your cottage or recreational property available for future generations, keep it in the family, and to lay out the rules of who can use the recreational property.

For real estate, we’ll need to see your deed to see how your real estate ownership is set up. There are various forms of owning real estate. Some of them avoid probate. Others don’t. One form of owning real estate is tenants in common. That’s where each person owns an equal share. If it doesn’t say joint ownership, it is tenants in common. If you own real estate with your friends as tenants in common, your share, whether it’s a half or a third, will go through the probate process according to what your will says.

The form of ownership that avoids probate is joint tenants with a right of survivorship. You own property with a friend or a brother or sister or maybe you inherited the property that way. It automatically goes to the survivor without probate.

Tenants by the entirety is ownership by husband and wife. If you and your spouse bought the house when you were married and the spouse dies while you’re still married, the house automatically transfers to you without probate. This is another common question we get. The house automatically became yours upon the spouse’s death without having to go through probate. When they sell the house or refinance the house, they will have to file an affidavit that they were married when they bought the house, and they were married when the spouse died to show that they have title to the property.

Another form of real estate ownership is life estate. People commonly do this to preserve their house in case they have to go into a nursing home. It’s their major asset. They prepare a new deed to their child, in which they keep life use, and then say their child, called a remainder person, will get their house immediately upon their death. Many people do this five years before they go into a nursing home, so it won’t be considered a resource when they qualify for nursing home care. There are some disadvantages to that as opposed to putting it into a living trust. Both the life estate and living trust avoid probate. You can still get your property tax exemptions, your senior exemptions, and so forth with both of them. You will have to reapply for them.

The disadvantages of doing this, of a life estate versus putting it into a living trust, is that if your children go bankrupt, then there will be a substantial amount of money that has to be paid to the bank of the trustee, probably the majority of the value of your house. This has happened before. Children have gone bankrupt and sometimes have listed the house because they have what’s called a remainder interest in the house. Even though they don’t have current use, with the life estate deed, you have the right to occupy the property. No one can kick you out. You can do whatever you want with the property. Upon your death, it automatically goes to your survivors.

If they are sued and have money judgments against them, there will be leans against the house. There are two ways of avoiding this. If you insist you want a life estate deed, sometimes people deed their house to the child least likely to go bankrupt or least likely to be sued, and then that child signs an affidavit that they will share the proceeds with their siblings when the property is eventually sold. The other alternative, is rather than deed your house to your children in their names alone, you deed it to the trust to which they’ll be named as trustees. If they get sued or go bankrupt, it does not affect your property at all. With an irrevocable living trust, this would achieve the same goal. Plus, you can put other assets into the living trust that you want to protect. Again, this is something to discuss with your advisors or investment advisors and your legal and tax advisors about what is in your best interest for your situation.

Another common way people may not need our services is all the ways you can go through a probate process without an attorney. Many people are not aware of this, and I have all this information on my website. Another one of these is called a surrogate’s court procedure act 1310 affidavit for bank accounts. It can be used for unclaimed funds. If you want to check in the controller’s site if there are dormant accounts or accounts turned over to the controller, they accept this affidavit, too. You don’t have to be appointed as an executor to get access to someone’s bank accounts.

Many of the banks have their own forms, but the surviving spouse can claim up to $30,000 in a bank account, investment account, or unclaimed funds without going to court if you ask the bank about this form. Other relatives can claim up to $15,000 in accounts. If you paid the funeral bill for someone, you can get access to these accounts. There are more distant relatives who can also claim up to as much as $5,000. This is without going through the probate process. There are ways just like there are ways of getting around having to go through the probate process to transfer a motor vehicle through the DMV form.

Are you going through the estate planning process and have questions about NY probate avoidance? Contact our experienced New York probate Lawyers at Friedman & Ranzenhofer today to schedule your consultation.

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