Can I Avoid Probate Without a Living Trust?
Possibly. However, there is a very good chance that any technique you use to avoid Probate other than a Living Trust will cause your family more grief and end up costing your family tens of thousands or even hundreds of thousands of dollars.
The most common probate-avoiding self-help techniques and the problems they create are as follows:
The most common technique for avoiding probate with respect to real estate is to name one or more of your children as joint tenant on the title to their home.
However, if you do this, the child or children named as a joint tenant may be saddled with a huge tax bill, since their tax "basis" in the home will be the same as yours. This is because, upon your death, they will obtain sole ownership of the property because of their prior status as a joint tenant, not through inheritance.
As a result, they will not be entitled to the “step-up” in basis for the home to which they would be entitled if they inherited the home. As a result, your attempt to avoid probate and the cost of preparing a living trust could end up costing your children tens of thousands, or even hundreds of thousands of dollars, in capital gains taxes.
You would also disinherit children not named or subject the child named to gift tax liability is he or she distributed the property to other children.
Some people try to avoid probate by “gifting” assets to their children, with the expectation that the assets will be used for their benefit while they are alive. However, once you give away your assets, your children might decide not to use the “gift” for your benefit, and you would have no remedy. Furthermore, you are required to file a gift tax return for “gifts” over a certain value ($14,000 per annum in 2013).
Transfer on Death Designations:
A Transfer on Death (TOD) designation is a relatively new tool which can be used to transfer assets easily upon death. For example, you can usually name someone as a “Transfer on Death” beneficiary of your bank accounts. California also permits individuals to transfer automobiles by using a TOD designation on the title
However, keeping track of these designations can be a chore, and you could accidentally disinherit a child or other beneficiary if you change banks or buy a new car. Moreover, property transferred via a Transfer on Death designation goes directly to the person named, without the protection which can be provided through Special Needs Trusts, Spendthrift Trusts or other estate planning tools.
Accordingly, I recommend that TOD designations be used only for transfers of automobiles and perhaps for some small bank accounts.
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