Get good advice
The most common effective technique after death is to arrange for the legal transfer of all assets to the intended beneficiaries without probate. This is difficult, but sometimes possible with very good legal advice to arrange with real estate.
Similarly, good legal advice can sometimes ensure the proper transfer of financial assets (investments and bank accounts) to a surviving spouse without or outside probate.
The most common effective planning technique to employ prior to death to minimize probate tax is the use of ‘dual wills’, whereby assets that require probate pass under one will, and other assets that often do not require probate (such as the shares of a family or private business) pass under a separate will that is not subject to probate. Of course, this requires advance planning and preparation by the testator (the person making the will), and, a lack of dispute among the potential executors and beneficiaries.
Don’t rely on joint tenancy
However, many other ‘plans’ designed to minimize probate fees are in fact very bad planning, which create for more trouble and cost than they avoid. For instance, a remarkable number of people think that it is a good idea to put ownership of houses and bank accounts in ‘joint tenancy’ with one of their children solely to avoid estate administration tax, but these attempts often create truly bizarre, unwanted, and sometimes completely unjust results – with one or more children or other beneficiaries potentially being deprived of their rightful share of the estate. These ‘joint tenancy’ tactics invite hard feelings and expensive litigation; the potential savings (1.5%) are trivial, and the potential costs massive.
These ways to avoid probate taxes are often based on a complete misunderstanding of the law. For instance, for bank accounts held in joint tenancy between a parent and adult child, the presumption is that the account IS part of the estate and must be probated – the onus of proving that the bank account is a gift to the adult child and not part of the estate lies on the adult child. This onus is often very hard to rebut.
We strongly recommend that you avoid these ‘joint tenancy to avoid probate tax schemes’ unless you:
- have received very good legal advice,
- have carefully thought through all of the consequences,
- execute the plan very carefully and ensure that it is part of a well integrated estate plan, and
- keep the full plan updated regularly.
We can help.
If you want proper advice that structures your estate in a way that is tax efficient and effective, please contact us.
If you think that you have been victimized by a ‘joint tenancy to avoid probate’ tactic which has reduced the size of the estate, please contact us.