8 ways to avoid probate in Utah

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8 ways to avoid Utah probate - orange line

“Probate” is the court process for wrapping up the affairs of a deceased person and transferring his or her property to others. The court process can be slow and expensive, especially when family disputes complicate the issues. In most cases, the expenses and time periods of the probate are much less than most people imagine, and much of what is said and written about probate is mythical. Many of the probate myths do not apply to twenty-first century Utah probate.

The following ideas require actions before death. After death, probate may be avoided for small estates, but it is too late for planning to avoid probate on larger estates and for smaller estates which contain real estate.

Each of the following ways to avoid probate carries its own risks and disadvantages. Before using any of these, you should speak to a lawyer about your own personal situation. Our Utah estate planning and probate lawyers have seen many unwise attempts to avoid probate.Happy elderly man that knows how to avoid Utah probate

1. Create a trust to hold your property. (Our top choice) This method requires the creation of a trust with transfers of property into the trust. Usually the trust is a revocable living trust, meaning it can be changed or undone if circumstances change. Usually, the person creating the trust (called the “settlor” or “grantor”) continues to manage the property as trustee until he or she dies. When the Settlor dies, the trust gets a new trustee and continues on without a probate. This works very well.

Advantages:

  •     Continued use and control of the property
  •     No tax consequences to a revocable trust
  •     No additional risk of losing the property
  •     Predictability.

Disadvantages:

  •     A trust can be expensive — several hundreds dollars to several thousands of dollars, depending on the trust and the lawyer writing it.

2.  Jointly Owned Property with the right of survivorship.  Most married couples in Utah own their property jointly.  The most common form of joint ownership of real estate in Utah is joint tenancy., which means the property transfers to the survivor as a matter of law when one of the joint tenants dies. (A less common ownership of real estate, called “tenants in common,” requires a probate when one owner dies.) Joint accounts, jointly owned stock, jointly owned motor vehicles and other jointly owned property transfers to the surviving joint owner(s) when one owner dies, and no probate is required to make the transfer.

Advantages:

  •     Works well between married people
  •     Is commonly understood, inexpensive and predictable.

Disadvantages:

  •     Requires a probate to transfer the property if both (all) owners die
  •     Is riskier between non-married people, whose relationship may not last
  •     Has unwanted tax consequences when one person adds another person who is not the spouse to the title. Gift tax may be owed, and the person who receives the interest may have to pay substantially more income tax on the sale of the property.
  •     The person transferring a joint interest loses control over half the property. The half given away is legally the property of the recipient.
  •     The transfer cannot be undone without the written consent of the joint owner.
  •     The property cannot be sold without consent of all owners unless a court orders the sale.
  •     Creditors and divorcing spouses of an owner can claim or attach the property.
  •     Can result in unequal inheritances. For example, many older Utahns add one of their children as a co-owner of the account. When the parent dies, the account goes to the joint owner no matter what the will or trust says. If the surviving co-owner receives an inheritance through a probate or trust in addition to inheriting the balance of this account, the inheritances in the family will be unequal.
  •     Transfers only the deeded property, not other assets of the transferor. Probate may still be needed on other assets.

3.  Payable on Death (P.O.D.) Accounts. Owners of most banks, credit union, brokerage, and other financial accounts can sign a certificate or card making the account “payable on death (P.O.D.)”  to the designated beneficiaries of the account. When all account owners die, the money in the account passes to the beneficiaries as a matter of contract and law.  No probate is necessary to transfer the account.

Advantages:

  •     Works well between married people
  •     Is commonly understood, inexpensive and predictable.

Disadvantages

  • Transfers only the account balance, not other assets of the creator of the account. Probate may still be needed on other assets.
  •  If other property of the account owner passes to his or her heirs at death, this account will be in addition to the other inheritances received by the account beneficiaries through a will or trust, thus causing unequal inheritances.

4. Transfer on death (T.O.D.) ownership.  Shares of stock, business interests and other assets sometimes have “transfer on death (T.O.D.)” designations which leave the property to beneficiaries on the death of the owner. Similar to P.O.D. accounts, T.O.D. designations transfer the interest to the beneficiaries as a matter of contract and law.  No probate is necessary to transfer the account.

Advantages:

  •     Usually cost nothing
  •     Are commonly understood, inexpensive and predictable.

Disadvantages:

  •     Transfers only the asset, not other assets of the creator of the account. Probate may still be needed on other assets.
  •     If other property of the account owner passes to his or her heirs at death, this account will be in addition to the other inheritances received by the account beneficiaries through a will or trust, thus causing unequal inheritances.

5.  Transfers of real estate with a life estate reserved.  These transfers can be accomplished by deed. The owner makes a gift of the property to another person, but keeps a life interest in the property. The original owner stays in the property until death, then the property passes by law to the person it was given to. The transfer is a matter of law and a probate is unnecessary.

Advantages:

  •     Is commonly understood, inexpensive and predictable.

Disadvantages:

  •     Has unwanted tax consequences. Gift tax may be owed, and the person who receives the deeded interest may have to pay substantially more income tax on the sale of the property.
  •     The person transferring a joint interest loses control over the property. All but the life estate is legally the property of the recipient.
  •     The transfer cannot be undone without the written consent (deed) from the new owner.
  •     The property cannot be sold without consent of all owners unless a court orders the sale.
  •     Creditors and divorcing spouses of a new owner can claim or attach the property.
  •     Can result in unequal inheritances. For example, some Utahns give their property in a deed to a child.  When the parent dies, the new owner is legally the owner of the entire property. If the new owner also gets an inheritance from the original owner through a probate or trust, the inheritances in the family will be unequal.
  •     Transfers only the deeded property, not other assets of the transferor. Probate may still be needed on other assets.

6.  Life Insurance and annuities. When a person gives their money to an insurance company as a premium on life insurance, or an insurance annuity, the money is not part of the person’s estate, so no probate is needed. When the policy holder dies, the insurance value is paid to the beneficiary.

Advantages:

  •     Are commonly understood, and predictable.

Disadvantages:

  •     Life insurance and annuities can be very expensive for older people.
  •     The policy holder has given the money away and cannot use it during life for unexpected expenses.
  •     The purchase cannot be undone or modified, even if it turns out to be a bad deal.
  •     Many older people cannot qualify for a large insurance policy.
  •     Transfers only the money paid for the policy, not other assets of the policy holder. Probate may still be needed on other assets.
  •     If other property of the policy holder passes to his or her heirs at death, this insurance or annuity payment will be in addition to the other inheritances received by the beneficiaries through a will or trust, thus causing unequal inheritances.

7.  Contract sales with collection rights in your heirs. The owner of property may sell it to someone else in an installment sale, then collect installment payments so long as he or she lives. The contract can have a provision requiring the payments to be made directly to other family members or friends if the original seller dies, and giving them the right to sue for any breach in the payments. When the seller dies,

Advantages:

  •     Legally transfers future payments to designated persons

Disadvantages:

  •     Has unknown tax consequences. Gift tax may be owed, and the income tax consequences to the heirs are unsettled. The payments made after the sellers death may be fully taxable to the recipient, or they may not be, depending on how the transaction is characterized by tax authorities.
  •     The person transferring the property loses control over it.
  •     The sale carries the risk that the buyer does not make the payments.
  •     The transfer cannot be undone without the written consent deed from the new owner.
  •     Can result in unequal inheritances in the family.
  •     Transfers only the deeded property, not other assets of the transferor. Probate may still be needed on other assets.

8.  Give your property away before you die. This is easily done, but carries the most risk.

Advantages:

  •     It quickly removes the asset from the estate of the giver..

Disadvantages:

  •     Has unwanted tax consequences. Gift tax may be owed , the person who receives an appreciated asset may have to pay substantial more income tax on the sale of the property.
  •     The person giving away the property no longer has use of it.
  •     The transfer cannot be undone unless the new owner gives it back, raising additional tax consequences.
  •     Can result in unequal inheritances.
  •     Transfers only the gifted property, not other assets of the transferor. Probate may still be needed on other assets.

Now you know some ways to avoid Utah probate.

by Jack Helgesen

Helgesen, Houtz & Jones $$(801) 544-5306