When people pass away, they usually want to leave a legacy behind for their loved ones, usually in the form of property or money. However, many people don’t make their final wishes clear. If the surviving heirs aren’t in agreement about who inherits what from the deceased, the matter may end up going to probate court.
What is probate?
Probate is the court process for wrapping up a person’s financial affairs and transferring his or her property to heirs after death. While the term “probate” technically refers to the process of following a person’s last will, Utah follows an almost identical probate court procedure for wrapping up the affairs of a person who did not write a will. In this article, “probate” refers to the court process for wrapping up the affairs of a deceased Utahn, whether or not they wrote a last will.
Why do people want to avoid probate?
Probate can be expensive and can take a long time to resolve. When a probate is filed, the court may send written invitations to the entire family to file objections to it. In some cases, old family fights start up again, estranged children demand attention, heirs hire lawyers, and a simple probate can turn into a multi-year lawsuit.
Avoiding probate can be ideal because it can prevent these types of issues. Some plans for avoiding probate are good, while others can lead to more issues that end up costing a lot of money.
The Five Worst Ways to Avoid Utah Probate
Many of the ways people try to avoid probate are simply bad ideas. Do‑it‑yourself probate avoidance often creates more problems than it solves. Here are some of the worst ways Utahns try to avoid probate:
- Writing a will: While writing a will is never a bad idea, many Utahns think they can avoid probate with a will. You cannot avoid probate with only a will because wills cannot transfer property. This means if you have assets you want to pass to loved ones, it isn’t covered in the will and a probate matter still has to be opened.
- Giving away your property before you die: People often give away their property when they think they are dying. If you don’t own any large assets when you die, you can avoid probate. While giving away personal effects before you die doesn’t lead to probate, gifts of valuable property can, leading to more problems and costs for your heirs/beneficiaries. One other problem this causes is a person may want their property back if they don’t actually pass away.Giving your house or other real estate to your heirs before you die can also create big tax problems. Consider Robert’s story:Two weeks before his death, Robert signed deeds transferring his rental property and farmland to his children. He died not knowing his deed transfers had cost his family more than $100,000 in capital gains taxes on all of Robert’s gain on the property. If Robert had let the property pass through his trust after he passed away, his children would have had no taxes.The moral of the story is that giving away property before you pass away can cost your heirs and beneficiaries a lot of money in taxes and it is better to let the property be passed down through a trust.
- Putting your children’s names on your real estate titles deed(s): Friends may advise you to avoid lawyers and probate by putting your childrens’ names on your house and real estate titles. Consider Marie’s story:Marie heard she could avoid probate by putting her four children on the deed to her home. This cost her a lot of money. Five years after changing the deed, Marie’s daughter, Terry, filed bankruptcy because of an accident she was in. Terry’s creditors discovered Marie’s deed and the court ordered a sale of Marie’s home to pay Terry’s debts.To save the home, Marie’s other children jointly signed a new mortgage to pay Terry’s creditors. The IRS discovered the deed and mortgage, so they denied Marie the tax deductions for the mortgage interest. The IRS also required a gift tax return for the value of the house. When she sold the house to pay the mortgage, Marie lost a once‑in‑a‑lifetime tax exemption for the house. She and her children paid over $30,000 in capital gains tax caused by the deed.From Marie’s story, we see that putting your children on the deed to your property is a bad idea because creditors can seize the property from under you if your children have financial problems.Another reason to not put your children on the deed(s) to your real estate is taxes. The IRS will consider your children to be part-owners of your property on the day you sign the deed, and they may have large taxes to pay if they decide to sell it.
- Putting your children’s names on your financial accounts: Your family may suggest that you put one or two of your children on your bank or credit union account(s) so they can help you manage your finances. Even beyond the problems of a child’s dishonesty, or unreasonable accusations against them by other family members, this is a very bad idea because the law makes them an owner of the account(s) the day you put their name on the account(s). This puts your money at risk to your children’s creditors and may result in unwanted taxes.Thousands of Utahns have put one child on a financial account with the child promising to share the account with other heirs after the parent passes away. Utah law will not enforce this verbal promise. Even if other heirs are supposed to inherit money from these accounts, your co‑owner can withdraw the money and the other heirs may never see it unless they go through a long and expensive probate process.
- Signing an unrecorded deed for your property: Some Utahns think they can avoid probate by signing a deed but not recording it with the county records. This is risky. A deed that is recorded years after its signing can cause title problems.Living on a property for years after you deed it to another person can suggest the deed is invalid and may open the deed to an attack by creditors or other heirs. If the deed is accepted, large taxes may result from a transfer on the signature date.Often, unrecorded deeds are not found. If it is found by potential heirs who are not on the deed, they may hide or destroy it. In other cases, unfiled deeds can be forgotten and contradict estate plans created after the deed was created. Our advice is to not do this.
The four bests ways to avoid Utah probate
We’ve seen some of the worst ways Utahns try to avoid probate. Here are the four best and simple ways to avoid it that also won’t cost too much money:
- Create a revocable trust: The best way for Utah families to avoid probate is through the creation of a Utah revocable trust, also known as a living trust. The trust is “revocable” which means it can be changed or terminated. They are called “living” trusts because they are created while the person is still living. Revocable trusts avoid probate because the creators (also called “trustors” or “settlors”), transfer their property to the trust, and the trust continues beyond their deaths. People chosen by the creators manage the trust after the creators die.A revocable trust has powerful advantages over all other methods of avoiding probate. Some of these benefits are:
- Trusts allow the trust creators to freely manage and use the assets of the trust as their own while they are alive.
- Trusts provide for a succession of trust managers (“trustees”) if the trust creators become disabled or unwilling to manage the assets.
- Trusts can preserve assets for the surviving spouse.
- Trusts provide detailed instructions for the transfer of assets to the next generation.
- Trusts can delay and preserve inheritances for irresponsible heirs who might otherwise squander them.
- Trusts can delay and preserve inheritances for disabled heirs who could not manage them.
- Trusts allow privacy in the management of personal assets and inheritances.
- Trusts usually cost less than probates.
- Trusts can live on for multiple generations.
- Other types of trusts can protect your property from creditors while providing the same probate avoidance benefits of a revocable trust. Appointed trustees should be able to manage the trust without needing lawyers or courts.
2. Use beneficiary designations on insurance and financial accounts: The wise use of insurance allows any person to transfer money to their heirs upon their death without probate. Financial accounts offer the same benefits with payable-on-death (POD) designations of account beneficiaries. You should be careful to keep your beneficiary designations current. If the policy or account balance goes to your estate after you die, your heirs will likely need a probate.
3. Use joint-tenancy deeds: These real estate deeds, if properly written, give joint owners the “right of survivorship.” This allows the interest of one owner to pass without probate to the joint owner(s) when one dies. Be careful, however, because many shared ownership deeds are not in joint-tenancy.
4. Use transfer-on-death deeds for Utah real estate: Utah law allows real estate owners to create a deed that transfers the property to one or more beneficiaries on the owner’s death. This deed can be changed at any time for any reason and the owner retains complete control over the property until he or she passes away. These deeds can be tricky to write, so we recommend you use a professional. If done correctly, these deeds are an inexpensive and effective way to avoid probate.
How an estate planning lawyer can help you
Having a solid estate plan can help your loved ones avoid probate. If you don’t have an estate plan, contact us today. For almost 40 years, attorneys at Helgesen, Houtz & Jones have created hundreds of revocable trusts for clients. If you’re already in the middle of a probate matter, our lawyers can help you with that as well. Our family cares about your family. Contact us today for a free estate planning or probate consultation.