Five Methods for Avoiding Probate

There are numerous ways a person can avoid having his or her property probated.  The following are some of the most common methods for avoiding probate:

Deed of Trust

A "Deed of Trust" is a legal instrument that grants a Lender a Security Interest in real estate.  The Security Interest creates a lien on the property on behalf of the Lender and gives the Lender the right to foreclose on the property should the Grantor of the Deed of Trust fail to satisfy the terms of the loan.  A Deed of Trust and a Mortgage are similar in the rights they grant the Lender.

Kansas Enhanced Life Estate Deed

Kansas is one of several states that recognizes the Enhanced Life Estate Deed (a/k/a Ladybird Deed) as a means of transferring property to your heirs when you pass away.  In simple terms, the Enhanced Life Estate Deed changes the way the property is owned from the usual form of ownership (like the General Warranty Deed or Quitclaim Deed) where the house or property is disposed of by the courts using the probate process into an ownership that transfers the property directly to a named beneficiary when the current owner passes away. 

Unlike Beneficiary Deeds in other states, the Kansas Enhanced Life Estate Deed does not give the beneficiary any rights in the property while the current owner is alive.  This means the current property owner can sell the property at any time without the beneficiary's consent and the beneficiary's creditors cannot attach liens to the property while the owner is alive.  There is no creation of a "Life Estate," nor is a Trust required.

Avoiding Probate
Instead of probate, the beneficiary need merely file the death certificate in the local county records for the property to be transferred.

See also my articles on the Florida Enhanced Life Estate Deed, Texas Enhanced Life Estate Deed, and Ohio Enhanced Life Estate Deed.

Alabama Life Estate Deed

Alabama Life Estate Deed
The Alabama Life Estate Deed is a document that grants ownership of a parcel of real property to two separate parties: (1) the Life Tenant, and (2) the Remainderman.

The Life Tenant
As in other states, the Alabama Life Estate Deed gives the Life Tenant complete use and ownership of the property for a certain period of time. That period of time is measured by the life of a natural person; usually the Life Tenant’s. In other words, if I am the Life Tenant and the time period is measured by my life then when I pass away the “life tenancy” automatically terminates. However, if the time period is measured by the life of my wife and my wife passes away before me the Life Estate automatically terminates upon her passing and I can legally be evicted from the property.

The Remainderman
When the Life Estate owned by the Life Tenant terminates, the Life Estate Deed transfers ownership of the property to the Remainderman. The Remainderman is the person or persons whose names are listed on the Life Estate Deed as a Remainderman. To officially transfer ownership, in most states the Remainderman need only record the death certificate of the person whose life was the measure of the Life Estate.

A Life Estate is different from an Enhanced Life Estate. You can read my other articles on the Enhanced Life Estate Deed and the standard Life Estate for a greater understanding of the differences.

Asset Protection: Four Important Techniques

The topic of Asset Protection from creditors is an important one. The following are four general techniques you should consider when deciding how to protect your assets:

(1) State and Federal Statutory Exemptions. A number of your assets are automatically protected from creditors by state and federal statutes. For example, some states do not allow judgment creditors to attach the home of a "head of household" to the judgment. The term "head of household" applies to a person who supports either a spouse or children or both. You should consult an attorney to determine which Statutory Exemptions are available in your state.

(2) Forming a Professional Entity. Forming a Corporation, LLC, PC or other professional entity can limit your individual liability. If you own rental homes or other rental properties you may consider forming a corporation or other professional entity and placing ownership of the property into the entity. If someone is injured on the property your personal assets will be exempt from any potential judgment against the professional entity.

(3) Domestic Asset Protection Trusts. A Domestic Asset Protection Trust will allow you to protect your assets by placing them into a trust. You can name yourself as the beneficiary, but prevent potential creditors from getting at trust assets.

(4) Transmutation Agreements. Transmutation Agreements are available in community property states and effectively convert a husband and wife's community property into separately owned property for more protection.

Trusts: Rule Against Accumulations

Rule Against Accumulations
In most states a private trust may accumulate income only for the period of the Rule Against Perpetuities, unless a different period is set by statute. While the Rule Against Perpetuities is concerned with restraint on alienation of property as a result of the creation of uncertain and remote future interests, the Rule Against Accumulations is concerned with the unreasonable tying up of wealth as the result of unreasonable accumulation requirements. A gift which vests within the period ofthe Rule Against Perpetuities will be valid although a provision as to the same gift requiring accumulation beyond the period of the Rule will be stricken.

Trusts: Rule Against Perpetuities

The common law Rule Against Perpetuities holds that a beneficiary’s interest in a trust is void unless it must vest, if at all, within twenty-one (21) years after some life in being at the creation of the trust.

However, there has been a modern trend toward reform of the Rule.  The reform Rule states that a beneficiary’s interest will not be found to be in violation of the Rule if it must vest within 21 years of some life in being at the creation of the trust or actually does vest within 90 years after its creation. This is a statutory "wait and see" rule. In determining whether a beneficiary’s interest must vest within 21 years after a life in being, the possibility that a child will be born to an individual after the individual’s death is disregarded.

Some states have also statutorily alleviated the more damaging consequences of the Rule by
allowing their courts to modify the trust mode of distribution so as to bring the beneficiaries’
interests within the Rule. In some states, the court with jurisdiction of the trust may exercise its equitable power to reform the disposition in a manner which conforms with the settlor’s manifested plan of distribution and is also within the limits of the prior existing Rule of Perpetuities. In other states, the court can exercise its equitable power to modify the trust disposition in a manner which both conforms with the settlor’s plan of distribution.

Enhanced Life Estate Deed, Ladybird Deed

One of my clients is an elderly widow. 

She recently contacted me with several concerns about her estate. Her primary concern was that she wanted to keep her home out of probate when she passes away. 

Like most people, she doesn't like the idea of her property being tied up in legal limbo for months before her beneficiaries (i.e. her daughter and two sons) take possession of the home.

Estate Planning; You Decide Who Gets What

Most of us have heard the saying "nothing is certain but death and taxes." When it comes to estate planning these two things, death and taxes, should be at the forefront of everyone's mind. That being said, there are numerous ways to plan for the inevitablity of death. Most estate plans include creating a Will, setting up Trusts and obtaining life insurance policies.

If you do not plan your estate now a state legislature will divide it up when you die. The one size fits all approach taken by your state legislature will most likely not divide your property the way you would divide it. The legislature is not going to know that you want your musical genius nephew Jimmy to have your complete Elvis collection and not your tone deaf son Roy. More importantly, the legislature is not going to know who you want to have custody of your children or who you want to administer your estate.

Create A Will
EVERYONE SHOULD HAVE A WILL! A will is a legal document that specifies who will manage your estate and who is to receive what at your death. A will must be in writing and must meet certain specific requirements to be valid. In most states, the person making the will must sign the will at the end and the signature must be witnessed by at least two other individuals. Most states prefer that the witnessess be uninterested parties to the will. The witnessess must also sign the will in the presence of each other and the person making the will. The will must also clearly identify the property to be bequeathed, the individuals to whom the property is bequeathed (the "beneficiaries") and that the person making the will intended to leave the property to the beneficiaries at his or her death.

To obtain the specific requirements for a valid will in your state contact an estate planning attorney in your state. There are also computer programs that allow you to create your own will. The problem with these programs is they may not meet the requirements of your state.

Consider Setting Up A Trust
If your estate is large enough you may consider setting up a trust to avoid estate taxes upon your death. A trust is a property interest (money, home, car, etc.) held by one person (the trustee) at the request of another (you, the person setting up the trust) for the benefit of a third-party (the beneficiary). Most trusts allow you to name yourself as the trustee if you wish. There are several different types of trusts that can be set up including active trusts, blended trusts, blind trusts, revocable trusts, irrevocable trusts, etc. To set up a trust contact an attorney in your state who specializes in estate planning. Do not set up the trust yourself. You will most likely not meet all of the legal requisites and the trust will be declared invalid.

You may also set up a trust funded with the proceeds of a life insurance policy. Although there may not be any actual funds in the trust at the time it is set up the life insurance proceeds will activate the trust upon your death.

Other Estate Planning Articles
Estate Planning and the Enhanced Life Estate Deed, The Difference Between the Enhanced Life Estate Deed, Warranty Deed and Quit claim Deed, The Traditional Life Estate Deed, The Revocable Transfer on Death Deed and California's Revocable Deed .