By far, real estate property is the single largest over-looked item when doing estate planning.

By Matthew M. Lewis, JD., M.Tax

Probate – it’s usually not the intended result families have after doing estate planning and it’s surely not going to be a priority for those left behind after a loved one dies. However, sometime in the future, after a family member dies, the issue of going through the probate process will rear its ugly head if proper estate planning wasn’t done. Part of that proper estate planning is making sure that the home and other real estate property passes to the next generation efficiently and affordably – that being, passing to the next generation without having to go through probate.

A brief explanation of probate might be required as a background to this article. Quite simply, probate is the process of transferring assets from a person who died to others still alive. Usually, a spouse, children, or other family members are those that inherit property from the decedent. This inheritance can easily be given from the estate of the decedent to the person who is entitled to inherit the property. This instruction of “who” gets the property is generally left behind in a will or perhaps a trust. If there isn’t a will, the State has a plan of who inherits through its intestate succession statutes (laws). These are laws that determine who gets what from a decedent’s estate if there isn’t a will. However, I run across much confusion when dealing with property that has a title or a deed. The ownership of cars, boats, and other transportation-related property is determined by a title. The ownership of real estate is determined by a deed. When a person is still alive, generally the only way to transfer real estate from a current owner to a new owner is for the current owner to sign a new deed conveying the ownership to someone else. What happens if that real estate owner has died but has real estate deeded in his name only? The answer is probate.

It is often misunderstood that if a person has a will and that will says “Everything I own goes to my spouse” or “all the rest and remainder of my estate I leave to my children in equal shares,” the real estate property goes to the spouse or children automatically without any fuss. Unfortunately, this is not true. As mentioned, generally, the only way to transfer real estate is for the current owner to sign a new deed. Obviously, if the owner has died, that owner can’t sign anything. This is when probate is required -for a judge to approve the transfer from the deceased owner to those entitled to inherit. The will must be probated and the proper paperwork must be completed and filed with the court. Only then will the judge approve the transfer. After all of that has been done, the real estate can pass to the persons named in a will or those standing to inherit through the intestate succession statutes.

So what’s the big deal about going through probate?  Mostly, it costs money and it takes time. It would not be uncommon for a $200,000 house to cost $3,000 in court costs and attorney fees. If there is other personal property, equipment, automobiles, and various improperly titled bank accounts or investments, an estate worth $500,000 would easily cost $10,000 to go through the probate process. Regarding the time it takes; it depends on taxes and other required filings. The probate process could take a year or more before everything is said and done. How does someone save this cost and time and ease the burden for those left behind? Get a Transfer on Death Affidavit or a trust…or both.

A Transfer on Death Affidavit (TOD) is a document prepared by a lawyer that says when I (or We) die, my real estate goes to this person or people named in this document. Quite simply, it’s like naming a beneficiary for your home or other real estate property. Without a TOD Affidavit, unless the property is titled in a trust, your loved ones will need to go through probate to get the family home passed on to the next generation.

Between spouses, you should have a Survivorship Deed. A Survivorship Deed states that as long as either of us spouses is alive, that spouse is the owner. The problem is after the second death, that’s when a TOD affidavit or trust is needed to pass the home from the surviving spouse to the children or other named person. You can probably tell if you have a survivorship deed by going to your county auditor’s website and looking up your home. If the owner is just one person, further investigation would be needed by actually getting a copy of your deed from the country recorder’s office. If on your deed, there is only one person, it is imperative to get proper estate planning done to keep your home or other real estate property out of probate.

As mentioned, another way to keep your home and other real estate property out of probate is to have a properly drafted trust completed and then transfer the real estate into the trust by getting new deeds titling the real estate to the name of the trust. You can also have a TOD affidavit name a trust to transfer the real estate to the trust at the death of the owner. Either way, getting the real estate into a trust at the death of the owner will bypass the probate process for transferring ownership of that real estate. A trust has many other benefits besides bypassing probate but that’s a blog for a different day.

I’ve had to explain to many of my probate clients, who thought they had proper estate planning done, that they would need to go through the probate process, simply because the real estate was missed by another attorney. By far, real estate property is the single largest over-looked item when doing estate planning. It’s important that when speaking with your estate planning professional, you discuss the real estate owned by you and your spouse – to ensure that it passes to the next generation effectively and efficiently – probate-free. If you’ve seen an estate planning attorney and your real estate wasn’t discussed, your plan is incomplete.

As always, this is general information and it may not be particular to every situation. A conversation with your estate planning attorney is always advised to make sure you and your family is protected and a proper plan is in place to preserve your legacy.

Thanks for reading.