Attorney James Jones: [00:00:00] Picture this. After you’re gone, your family is stuck in a legal quagmire. Months of court hearings, thousands in fees, and your private finance is laid bare. For all to see. That’s probate, and it’s a nightmare for most Washington families that they don’t see coming. Here’s the good news. You can sidestep this mess entirely.
With a few smart moves, Today, in today’s episode of Legacy Talk, we’re diving deep into the best strategies to avoid probate from quick bank account forms that take five minutes to fill out. It’s a powerful living trust to keep legacies private and secure. I’m sharing proven tips to save your loved ones time, money, and stress, so your assets flow smoothly to those who matter most to you.
So stay tuned for today’s episode for Practical Advice and Real Stories that’ll inspire you to act now and protect your family’s future.
Welcome to Legacy Talk. I am your host, James Jones. On today’s show, we’re talking about avoiding probate strategies that 00:01:00 work, and this week’s story is tragic. It shows. And demonstrates the unneeded hoops that are required to in probate and in administering someone’s estate. Now John and Ashley came to see me about their dad, who died tragically in a car accident with his wife.
Dad’s wife wasn’t my client’s mother. But they were a family. They did not have a will or anything else in place that said where they wanted their asses to go or what happened when they died. They owned a house together and vehicles, just normal stuff. Some bank accounts, John and Ashley needed help with the probate to clear title to the house so that they could sell it.
The problem was that the wife’s brother wanted to control her portion of the house. He was the beneficiary of her estate, so he opened his own probate for her estate. So we’re talking about two estates. For basically one house. In essence, these two estates couldn’t agree on assets. They couldn’t agree on realtors, they couldn’t agree on the sale price of the house, or anything really.
And this caused months and months of [00:02:00] delays. And after months of back and forth, they were finally able to finalize the estates. But it didn’t have to be like this, had John and Ashley’s. If Dad planned at all, things would’ve been much simpler and smoother. So in today’s episode, we’re going to be talking about ways to avoid probate and simplify the process of a state administration when someone passes.
Now, what is probate like? If you’ve never listened to the podcast, you might not know what probate is, or if you’re looking for a podcast about probate, maybe I should tell you what it is. So probate is basically a title-clearing process, okay? When someone passes away and they have an asset that has a title, like a house or a car, or a bank account, someone needs to be appointed or authorized to deal with that account because the person that died can’t sign their name anymore.
So probate is the process of getting someone appointed that is authorized to basically transact business or administer assets on behalf of 00:03:00 someone that’s died, right? And this process is done through court. The authority is given by a judge who basically says, Yep, you can be in charge. Okay? So why is it a problem if it’s a court proceeding?
Why is it a problem? Well, maybe that’s. Your answer right there is because it’s a court proceeding, but the issue really is that it takes time. Probate costs money. It can tie up assets, it can delay distributions. Probate fees can be anywhere from three to 5% of the estate. That includes the attorney. That includes executor fees, that includes court costs.
Probate can cause delays of up to six to 12 months on average before the full estate can be distributed, sometimes leaving families without access to funds, and oh yeah, it’s public. So public probate filings expose everything that you have, whether you have a will or not, to anyone who might be curious.
So the nosy neighbor from down the street might be sticking her nose in there and seeing what they 00:04:00 had in this probate. Okay, so how do we avoid it? And we wanna avoid it, right? Because it’s costly, it takes time, it’s public. Those are reasons we wanna avoid probate. How do we avoid it? Okay?
One simple way to do this and all these points that I’m gonna make are all these. Potential solutions there. There’s some that are better than others. Okay. There’s some that are better than others, and I’ll tell you which ones. Okay. The first one that is on my list to talk about is joint ownership.
Okay. Joint ownership with writer of survivorship means that when someone dies, and it’s a joint property, so if there’s, say there’s two people on a piece of property that has joint tenants with right of survivorship ownership, okay. That means if one of those tenants or owners dies, the other one gets the property.
No court, no nothing, right? It’s matter of filing a death certificate with the county, and you’re done. Okay? So you could, in order to avoid probate on a bank account [00:05:00] or piece of real estate, make that titled in the name of joint tenants with right of survivorship with your spouse or child or somebody else that you want to have, which would bypass probate.
And make it simpler. Once the first joint tenant dies. Like I said, the surviving owner automatically inherits without any court involvement, and it works with real estate, it works with bank accounts. I. But it’s potentially risky, right? Here’s the issue, right? Naming your kid, and I’ve talked about this all the time, putting your kid’s name on a property with you or on a bank account with you basically opens that account to any creditor or litigation, or any kind of risk that kid might have that you don’t have.
But because that kid’s name or that person’s name is on the property, they. Their creditors could basically come in and get [00:06:00] or put a lien on a house or garnish a bank account. So if you’re gonna do that, really consider it. Okay? Really consider it before you do so. It’s not the best choice. It works. It’s not the best choice.
Another option you can do is with your bank accounts, at least, is to make them payable on death. So payable on death accounts ensure that the funds transfer directly to loved ones without probate. The way to do this is at your bank, right? You can complete a payable-on-death form at your bank to name beneficiaries.
It takes a couple of minutes. You can do this on savings accounts, or you can do it on CDs. Sometimes you can do it on stock accounts with beneficiaries, but it’s not called a payable on death necessarily. And you wanna make sure, though, that if this is the case, is it in the kid’s best interest or the beneficiary’s best interest to get this money directly at your death? Should it be held in a trust? Are there issues that you need to consider?
So every one of these options [00:07:00] should make you think about some things as far as issues go. Okay.
Another way to avoid probate, and I’ve done full episodes on this, is the use of a living trust or of revocable trust. The revocable trust or living trust is the gold standard for probate avoidance. If you look at episode 29 of this very podcast, there’s an episode called The Revocable Living Trust Probate Slayer that you should listen to. It’s a good one. Okay. Episode 29. So if you pull it back, it’s a good one. A revocable trust lets you control assets during your lifetime, okay?
And it also deals with them when you pass away, and it distributes them privately without probate. So the reason a revocable trust works is that the assets that cause probate, like your house or your bank accounts, things that have to have their title cleared, that we talked about [00:08:00], things or assets that cause probate are already titled in the name of your trust.
So you basically put these assets, like your accounts in your house and stuff like that, into the trust, and you fund it during your lifetime. And during your lifetime, you manage it, right? You manage it just like it’s your own money, but when you pass away, it doesn’t have to go through that title clearing process because the trust says, Hey, when I’m gone, I’m naming this person as trustee to manage and administer the assets of this trust according to the trust’s terms.
So that person doesn’t have to go to court to get authority. They got authority from you and from the agreement. So that’s why it doesn’t have to go through probate. Now. It costs a little bit more to set up a trust and a will, but over the long term, a will is gonna cost you more because you’re going through probate, and probate’s more expensive than trust on almost all occasions.
And in this trust, like I said, you [00:09:00] appoint a successor trustee to MA basically act as that executor person, the person in charge when you’re gone. But they don’t have to go get court approval. They don’t have to tell the NA Z neighbor, it’s all private. For more info, go to episode 29, Probate Slayer.
It’s a fun one, like take a listen. It’s a good one. Another thing that you can do to avoid probate in Washington, at least, is something called a transfer-on-death deed. Now, a transfer-on-death deed allows homeowners to name beneficiaries who inherit their property when they die. It’s not the same as joint tenants with the right of survivorship.
It’s actually, if you’re given, doing it to make it so that your kid gets. Your house without probate. The transfer on death deed is better than a joint tenant with right of survivorship, title, and designation. And the reason why is, well, what is it? Right? With a joint tenant designation, all the creditors for that kid are yours too, right?
So that pro messes up the property, whereas a transfer on death deed, they can say, [00:10:00] well, I’m giving to my kid. This house, but only when I die. So they’re not really on title until you’re gone. And so their creditors don’t have any say in what happens while you’re alive. And this transfer and death deed is basically just a deed that’s filed with the county.
It’s drafted similarly to other deeds. It’s revocable during your lifetime. That means if that kid Johnny gets on your bad side, he’s out. Right? You can always change it, and so you can revoke it during your lifetime. But at death, when you pass away, it is distributed to the house directly to Johnny. And so it’s a pretty simple solution, and it’s a good solution for people with very minor estates or simple estates.
It’s not the best solution for everybody. It’s not better than a trust usually, but in certain situations it does work well. And I do transfer on debt deeds semi-regularly now. When they first came out, I wasn’t so sure, but now they’re pretty proven [00:11:00] and they’ve been around for a while in Washington now.
So the next thing that you can do if your estate is very small there’s something called a small estate affidavit. For a small or low value estates, Washington’s small estate affidavit process, lets heirs claim assets without probate as long as the. Assets that might be subject to probate are less than a hundred thousand dollars.
Now, this affidavit is basically a statement that you can make on a statutory form that, so basically that means that the statute says what this form should say, as long as it’s been 40 days since the person passed away. You don’t have to do a probate. Okay? It covers things like bank accounts, personal property.
It doesn’t. Cover real estate. So if there’s real estate, a small estate process is not going to work, but it works well for modest estates under a hundred thousand. There’s just some bank accounts, life insurance, something like that. Pretty simple. Another option that you have for avoiding probate in [00:12:00 Washington is gifting assets during your lifetime.
There’s good and bad to this. The good is you can get them out of your estate. You can transfer them before your lifetime. The bad is the creditor issue if your kids are bad with money. And the other issue is something called basis, and that deals with capital gains. So you can transfer things like cash or jewelry, that’s really not that big of a deal, but if you’re transferring houses or stock or something like that, it could cause problems.
Okay? And you can gift up to 19,000 per person, per year under the IRS annual exclusion without any gift tax issues. Most people aren’t dealing with gift taxes lately, like the normal person, the standard average person like you and me, that doesn’t have a $15 billion million dollar, sorry, $15 million.
Estate aren’t worried about gift [00:13:00] taxes at the federal level, but if you’re over that, you might be considering it. So that’s where the annual exclusion comes in. That’s an aside; that’s not really relevant to this discussion. We’ll move on. Gifts that you make during your lifetime can remove assets from your estate, reducing your probate need.
Right? If you gift a house or bank account or anything like that takes ’em out of the probate. It avoids disputes because you’re already handing it to the kid. It basically makes it so that you’re basically giving the kid their inheritance before you die. The downside on transferring assets, particularly stocks or real estate that have maybe been purchased at a much lower value.
So say for example, you bought a house for $200,000 and you give it to your kid during your lifetime, but. When you give it to the kid, the house is worth $600,000. So what that means is, or the negative [00:14:00] part on this is, well, what’s the problem, James? They’re getting an asset worth $600,000. Well, the issue is if they decide to sell that asset and it was gifted to them during your lifetime, they’re potentially going to have to pay capital gains on the difference between the 200,000 that you bought it for and the $600,000 that it’s worth.
Because your basis or what your investment into the property was, $200,000 is $400,000 less than what it’s really worth. So there’s a potential gain there and there’s ways to get outta gains and there’s exemptions and stuff like that. But if it’s just a straight sale, there’s going to be a gain most likely.
And so gifting assets like that can be a problem. If someone inherits, on the other hand, a piece of real estate, they get something called a step up in basis, which means. That $200,000 house or the house you bought for 200,000, that you have the 200,000 invested in, rather than getting 200,000 to your kid as their basis, they get the fair market value.
So they bump it up to the $600,000 number. So it’s more 00:15:00 beneficial typically for your kid to inherit assets rather than having them gifted to them. Okay? Now, Washington has a couple of unique rules. That aren’t available in other states. Washington overall favors use of trust and transfer death deeds over complex probate processes.
Our probate process in Washington is not the worst in the world. It is not the worst in the country. It’s not the worst in the West Coast. There’s California, which is much more complex, much more labor-intensive, and expensive than Washington’s. Does that mean you want to do it? No. Does that mean that it’s still something good that you should avoid? Yes.
Another thing that you can do to avoid probate in Washington is use a community property agreement. If you’re a married couple, Washington’s a community property state, which is one of a handful of states in the country, that you can have something called a community property agreement, which [00:16:00] basically says that you have assets that are owned as a community, which means a marital community.
And if you have a community property agreement in Washington that says, Hey, we have all of our assets as community assets, if one of us dies, then that asset basically just stays with the surviving spouse title in that property, vests immediately in the surviving spouse. And so that makes it so that they don’t have to go through probate for a house or a bank account, things like that.
Now. We talked about some issues at the start of this episode with the gen with the couple and their parents, right? John and Ashley, and their parents, and the two probates
that could all have been avoided if they would’ve had a revocable trust. Much of it could have been avoided. If they had a will plan. They had nothing. So real-life examples [00:17:00] like that show that there’s issues, right? Show that there’s things that you can do or things if you don’t do them cause problems, right?
Use of a payable-on-death account. For example, like a client of my named Sarah, she had a very simple estate. We just did a simple will, but she also did a payable-on-death account for her kids. She didn’t have a house, but she had a guardian that she needed to name in her will. She had a minor’s trust that she needed to create in her will for her kid.
But she didn’t wanna have a huge probate process, so she had this pay and death account. Alternatively, my client, Mike, had a probate that dragged on for over a year, costing his family thousands of dollars in legal bills, which is good for me, not for them, right? And like I say, a lot of the time, if you’re a regular listener.
I’d rather not do a probate if I don’t have to do a probate. I’d prefer it, right? I’d much rather just do estate planning, which avoids probate. It helps my clients better. It’s easier to manage. It’s just [00:18:00] better altogether. Okay? Planning now prevents the stress, and it preserves your estate’s value over time.
It makes it so much better, so much easier than having to go through probate. What I tell people when they talk to me about probate, well, why should we avoid it? It’s only a few months, and it’s not the worst thing in the world. Well, the reason that you avoid it is because it’s taking you four to six months to deal with, on average, 6-12, probably on, you know, in reality.
Whereas if you do a revocable trust or a transfer on death deed or something like that, it’s like a, the transfer of death is like snap payable on death accounts, snap, right? Revocable trust administration is a meeting or two with me, and you’re pretty much done as far as the property transfers go.
It’s much easier, and it reduces all the headaches that you get from probate. So meeting and using an a Washington estate planning attorney like myself to customize your estate planning strategy is important. You wanna always make sure [00:19:00] that your plans are up to date every three to five years. You wanna check that if you have major life changes or events that are different.
Interval-wise than three to five years. If they’re younger or older, you still want to check those, right? You wanna look at if you have major life events or, but at least every two to five years, I’d say. But empower your assets, right? Empower your loved ones with access to your assets. Don’t make ’em go to court.
Don’t make ’em have battles. Don’t make ’em have problems. And they’ll be happy, right? They’ll be happier. It’ll make their life easier and. Overall gives you the peace of mind that you’ve done what is right for your family and your legacy. That’s it for today’s episode. Next week we are talking about something interesting, more on taxes.
Is that interesting to you? I don’t know. Taxes and estate planning, what you need [00:20:00] to know. Okay. So if you wanna learn about estate taxes or any other kind of taxes with regard to estate ta, estate planning, similar to that basis discussion we had today, which was super interesting. I’m sure you’re titillated to hear more about taxes next week.
Don’t listen, though. Please listen. But that’s the end of today’s episode. I’d like to thank you for listening to today’s episode of Legacy Talk. If you like today’s episode and would like to learn more, please like and subscribe for more great content. I’ve been your host, James Jones, to your legacy.
