Is probate avoidance a concept that is past its prime?
Matthew Laurel Trinidad
You have the right to remain silent. Possession is nine-tenths the law. Caveat emptor. Avoid probate. These well-known legal adages are taken as a given and commonly inform the actions of those who are familiar with them. The last one merits some discussion because it causes people to make sometimes costly and occasionally risky steps to avoid the so-called “specter” of probate.
Probate is a court-authorized process for the confirmation of a decedent’s will (if there is one) and the administration of his or her estate. It used to be a needlessly inefficient and expensive process, primarily because the laws required close supervision of the administration by the court in a public proceeding that typically required the significant involvement of the estate’s attorney, even in routine and uncontested cases.
Two developments resulted from this inefficient state of affairs. First, people began structuring their estates to avoid the legal requirement that their estate be probated. Meanwhile, many states, including Colorado, adopted progressive laws that require, as a default, significantly less court involvement during the probate process, resulting in a simpler administration that requires limited or no involvement of an attorney.
Some modern-day attorneys, even in states with simplified probate laws, favor probate avoidance strategies. Others prefer traditional estate planning methods, but will use probate avoidance tools if the circumstances counsel in favor of doing so. Both of these philosophies have merit.
The most comprehensive tool to avoid probate is a revocable trust. A revocable trust requires than an individual hold his or her property in trust, subject to a trust document that spells out how the property will be managed and distributed during life and after death. The “settlor” of the trust remains in control of the property until he or she is no longer able, usually as a result of incapacity or death. The individual’s property is held in a fiduciary estate, so there is no personal estate to activate the legal requirement of probate. Other tools to avoid probate involve owning property in a manner that results in an automatic transfer on death under law, by contract, or otherwise.
Those who favor probate avoidance generally do so for a number of reasons: (i) even though the probate procedures in Colorado are relatively simple, the process can still be tedious and complex, so the likelihood of incurring significant expense remains; (ii) probate is usually an open proceeding that makes the decedent’s will and estate discoverable by the general public, including the curious neighbor, the creditor of an heir, or the news media; (iii) some would say that probate invites litigation or opens a door to claims against the decedent’s estate; and (iv) some say that a revocable trust is the best mechanism to manage a settlor’s property if he or she becomes incapacitated.
Each one of these points has a countervailing consideration: (i) setting up and maintaining a revocable trust can be complicated, and the costs may exceed those that would otherwise be incurred. Moreover, if the trust isn’t properly maintained, the estate may have to go through probate anyway; (ii) the courts in Garfield and Pitkin counties, unlike most courts, impose certain restrictions on public access to probate cases, so, at least in our community and at least for the time being, public access to probate court files is limited; (iii) creditors, beneficiaries, and other parties have the same rights and can initiate the same litigations in both revocable trust and probate administrations, though it is somewhat more inconvenient to commence litigation in the context of a revocable trust administration; (iv) powers of attorney and other planning methods that are typically part of traditional estate plans, if properly designed and used, generally work well in the event of an incapacity; and (v) improper use of probate avoidance techniques may result in unintentional gifts and may disqualify an individual for government benefits like Medicaid.
Ideally the arguments for and against probate avoidance should be considered and carefully applied to the circumstances. Sometimes the correct path is obvious. For example, if you own real property in multiple states, especially in a state with an archaic and burdensome probate process, or if privacy is a major concern, use a trust. In other cases, the matter may boil down to whether to invest money now to avoid probate or whether to subject your estate to relatively insignificant marginal expenses after death.
Matthew Laurel Trinidad is a transactional attorney at Karp Neu Hanlon PC. His practice emphasizes business law, estate planning and probate. Contact him at email@example.com, (970) 945-2261, or visit http://www.mountainlawfirm.com.
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