Small estates, and even big ones, can qualify for probate shortcuts

by Tom Alberts July 24, 2018

Summary: In many states, it’s not the size of an estate that matters if you want to avoid probate. It’s the value of the assets that are titled in an individual’s name without a beneficiary that plays a key role in whether you can avoid the costly and time-consuming process of probate. An estate can be worth many millions, but if those hefty assets are passed to beneficiaries through trusts and other estate-planning tools, the bulk of an estate can bypass probate. The assets that remain to be distributed can then fall below a state’s threshold, enabling an estate to qualify for a simplified and expedited form of summary administrative probate.

While few people may aspire to a life of modest means, having a small estate is one ticket to avoid the purgatory of a full-blown probate process.

Better yet, if a key objective is to avoid probate, it doesn’t mean you have to liquidate your estate and give away your possessions, real estate and money before you die. 

For those who’ve achieved financial success, accumulated substantial assets and are rightly wary of probate, don’t fret. There are strategies that can make a large estate look like a small one in the eyes of probate laws and glide through a streamlined probate process. An abbreviated and simplified probate process means you can avoid anxiety-filled trips to the courthouse, steep legal fees and dealing with unpredictable decisions that precede the slam of a judge’s gavel. Depending on the state, it may be possible to avoid a formal probate hearing and expedite the estate resolution process by filing the appropriate paperwork and affidavits with the court.

More than 20 states have established thresholds of an estate’s total value to determine whether formal probate administration proceedings can be avoided. If the value of an estate’s assets are below the threshold, a simplified form of probate, often referred to as summary administrative probate for small estates, may be utilized. 

That’s a big deal, because formal probate can take several months, even years, to complete for large estates. In the meantime, your heirs are denied access to their inheritance, and your legacy remains in limbo. Summary probate can be completed in much less time. In some states, if a decedent has been dead for a certain length of time, the estate – regardless of size – may qualify for summary probate.

HOW DO YOU STAY BELOW THE THRESHOLD?

To determine the dollar limit of an estate, add up the value of assets titled in an individual’s name without a designated beneficiary. If the total falls below the threshold, then the estate may qualify for summary probate.

Depending on the state, summary probate thresholds and other restrictions vary widely. In Georgia, for example, the threshold to be considered eligible for summary probate as a small estate is $10,000. In Arkansas, it’s $100,000. For California, the limit is $150,000 in combined real and personal property with a 40-day waiting period to qualify for summary probate via affidavit. In Minnesota, the threshold is $50,000 – as long as that’s personal property only and not real estate. Oklahoma’s threshold is $20,000 in personal property only. The amounts and restrictions run the gamut depending on individual state laws.

The trick is to keep the value of untitled assets below the state’s small-estate limit. The magic to stay below the threshold can be found in several estate planning tools.

Assets that are held in living trusts, payment-on-death accounts, transfer-on-death deeds, joint tenancy as well as life insurance proceeds and accounts with designated living beneficiaries like IRAs and annuities can skirt probate completely and don’t count toward the threshold total. 

A grantor who establishes a living trust takes advantage of a primary asset transfer tool to bypass probate and distribute assets directly from the estate to the beneficiaries. Assets left to heirs directly through a living trust – and outside of probate – in many cases are distributed within weeks of the grantor’s death.

Keep in mind that trusts must be properly established and funded during the life of the grantor to be valid and enforceable. But once they are, trusts skip probate entirely – unless the grantor outlives all the beneficiaries.

There may be assets that have not been placed in a trust at the time of a person’s death. In those cases, a  pour-over will may be an option. A pour-over will directs that any assets not transferred into a trust at the time of the grantor’s death be “poured over” into the living trust. In essence, the trust is the benefactor of the will. The key is to make sure the value of untitled assets in the pour-over will – sometimes called the “probate estate” – does not exceed the threshold for small-estate summary probate. Otherwise it could require that the will pass through a prolonged probate process. If a pour-over will is above the threshold and doesn’t qualify for summary probate, it can delay distribution of the trust for months until it clears regular probate. Therefore, it’s important to limit a pour-over will to minor assets to ensure staying below the threshold.

Summary probate won’t work if the will is contested or if heirs can’t be located. Estates with multiple creditors or that are insolvent and can’t pay creditors also won’t qualify for a shortcut.

Some states impose other restrictions on the use of summary probate. Those conditions may require the surviving spouse to be the lone heir or that all heirs must agree on the division of property. 

The Uniform Probate Code has been enacted in 18 states, and parts of the code have been adopted in several others. The UPC establishes a small-estate procedure that allows the executor of an estate to immediately disburse funds and distribute the estate without giving notice to creditors.

The UPC requires the executor to certify that the estate value falls below the threshold and distributions have been made to heirs. The executor also must send a copy of the closing statement to all heirs, creditors and other claimants. If no court action involving the estate is initiated, the appointment of the executor terminates a year after the closing statement is filed, according to the UPC.

Regardless of your state of residence, careful estate planning is essential to avoid the pitfalls of a long, drawn-out probate process. Developing an estate plan that establishes trusts, payment-on-death accounts and transfer-on-death designations can keep assets out of the “probate estate.” That’s important because many states allow small estates below a maximum value to qualify for expedited summary probate. 

There are numerous options and scenarios to consider when developing an estate plan that protects your legacy and achieves your objectives, and important decisions should be made with the advice of qualified lawyers and financial experts. Membership with Legacy Assurance Plan provides members with valuable resources and guidance to develop comprehensive estate plans that take life’s contingencies into consideration and leave a positive impact for generations to come. Legacy Assurance Plan members also receive peace of mind that a team of trusted, experienced professionals will assist them in developing legal, financial and tax strategies that will meet their needs today and for years to come through periodic reviews.

Legacy Assurance Plan is an estate planning services company. Its goal is to educate people on a variety estate planning issues. It also provides access to a variety of resources to help its members achieve their estate planning objectives. Whether your goal is as simple as protecting your family and loved ones from the costs, delays and hassles of probate or as complex as providing for a disabled child when you no longer can, Legacy Assurance Plan can help you find the information and resources you need to privatize your estate.

This article is published by the Legacy Assurance Plan and is intended for general informational purposes only. Some information may not apply to your situation. It does not, nor is it intended, to constitute legal advice. You should consult with an attorney regarding any specific questions about probate, living probate or other estate planning matters. Legacy Assurance Plan is an estate planning services-company and is not a lawyer or law firm and is not engaged in the practice of law. For more information about this and other estate planning matters visit our website at www.legacyassuranceplan.com. 

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