“How do I avoid probate?”
That is one of the questions that we are commonly asked. But just what is “Probate”?
What is Probate?
For those unfamiliar with the concept of probate, which is frankly most people who aren't probate lawyers, it is a judicial proceeding during which:
- A decedent's will, if any, is validated;
- A Personal Representative is appointed by the court to (we don’t use the term “executor” here in Arizona);
- The Personal Representative gathers the assets of the decedent’s probate estate that are located in Arizona, if any;
- The Personal Representative pays the valid claims filed against the probate estate, if any;
- The Personal Representative distributes the probate estate pursuant to the terms of the decedent’s will, if any, or pursuant to Arizona intestacy statute.
In Arizona, probate can take the form of one of three different types of proceedings: a) informal, b) formal, or c) supervised.
How Long Does Probate Take?
In Arizona, it takes a week or two for the court to appoint the Personal Representative, or Personal Representatives if more than one is nominated by the decedent, in the context of an informal probate proceeding. The appointment is then published in accordance with Arizona’s Probate Code. After the publication, a 4-month creditor claim period begins to run, after which all claims – except those of the U.S. Treasury Department – are forever barred. After the claims period has ended, and if no valid claims were submitted, the Personal Representative can then distribute the estate assets.
In general, it takes at least 5 months to probate an estate and can take well over one to two years in the context of an informal probate. That said, if the probate is a formal or supervised proceeding, the probate process can take significantly longer because of the court hearings necessitate by those types of proceedings.
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Why is Probate Necessary?
Although there are other scenarios in which probate is required, perhaps the single biggest reason probate is necessary, is to change legal title for property titled in the name of the decedent to the name or names of the decedents beneficiaries or heirs.
This is because the decedent cannot convey title after his/her death, unless titled is conveyed prior to death or unless the asset includes a valid beneficiary designation. Because of this the law requires another person – the court Personal Representative – to essentially “step into the shoes” of the decedent and convey the property on behalf of the decedent to the rightful heirs or beneficiaries.
It is important to understand that probate is required only for those probate assets that are located in a particular state.
For example, a widower named John owned houses located in California, Arizona, and Nevada as of the date of his death. In order to transfer title to the houses a Personal Representative or Executor will need to be appointed by a court in each of the three states, which will require probates in each of the three states.
In Arizona, however, there is an exception to probate for smaller estates, which allows small estate to be administered via affidavit.
What Types of Assets Are Subject To Probate?
In order to understand how to avoid probate, it is important to understand the laws that affect a decedent's estate, namely there are two bodies of such law: 1) federal law and 2) Arizona law
In the United States, valid federal law is supreme and pre-empts, i.e. overrules, state law to the contrary. Further, much of the law that governs retirement plans and securities is federal law.
In terms of probate, or more specifically avoiding probate, qualified federal retirement plans allow people to designate those persons who will be their beneficiaries upon the their deaths. If these designations are valid, any transfers made to such beneficiaries occur automatically, outside of probate, and CANNOT be affected by proposed dispositions which would occur pursuant to legal devices made via state law, like a will or trust.
In general, assets that are not:
- Titled in joint tenancy;
- Titled as community property with right of survivorship;
- Governed by federal laws such as the Employee Retirement Income Security Act (ERISA);
- Subject to beneficiary deed; or
- Life insurance;
are not subject to probate, but most other assets are subject to probate.
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Strategies to Avoid Probate
If the disposition of an asset or property is not subject to federal law, there are multiple strategies whereby a person can structure his/her estate so as to avoid probate in Arizona pursuant to Arizona law, including: a) revocable "living" trust, b) beneficiary deed, and/or c) joint tenancy.
a) Revocable "Living" Trust
Perhaps the most popular way to avoid probate is via the use of a revocable trust or, as it's more commonly called, a living trust.
A revocable trust is a separate legal entity that is just that: revocable. This means the trust can be revoked or amended by the person or people who created the trust — often called trustors, settlors, or grantors – which makes it very similar to a will in terms of flexibility.
Unlike a will and because the trust is a separate legal entity that continues to exist after the trust grantors, it is often not necessary to seek court appointment of a Personal Representative to transfer legal title to the assets that are owned by the trust because the person or people who administer the trust – often called Successor Trustees — can essentially “step into the shoes” of the deceased grantors automatically, pursuant to the terms of the trust and trust law.
In order to be effective, however, the trust grantors must transfer title of their assets to the trust after the trust has been formed and while they are still living.
b) Beneficiary Deed
Arizona law specifically allows a person to create a beneficiary deed that will become effective upon that person's death, rather than becoming effective immediately. Beneficiary deeds are revocable up until the death or deaths of the deed “maker” or “makers” and can be used to convey title to real property, i.e. real estate, and personal property, such as automobiles and other title vehicles.
c) Joint Tenancy or Community Property with Right of Survivorship
Various types of property, such as real property and bank accounts, are owned in joint tenancy as community property with right of survivorship. Under Arizona law, when one joint tenant dies, the decedent's interest in the property is automatically transferred to any other joint tenants on a pro-rata basis. This automatic transfer cannot be stopped or avoided by the provisions of a will or revocable “living” trust.
This brief overview of some important considerations associated with avoiding probate in Arizona is by no means comprehensive. Always seek the advice of a competent professional when making important legal decisions.
Steve Cook is an estate planning attorney at Cook & Cook. Although his office is located in Mesa, Arizona, he represents clients throughout the Phoenix, Arizona Metropolitan area including the following east valley cities: Scottsdale, Paradise Valley, Tempe, Chandler, & Gilbert.