When a new client comes in to see me, I always tell them that if they can remember one sentence, they will know more about probate law than 99% of their family and friends. Here is the sentence: If an asset is "stuck" in the name of a dead person alone, it will have to go through probate court.

By "stuck" I mean that the person who died never listed another person as a death beneficiary or co-owner with right of survivorship, or retitled their asset into the name of their living trust. Since dead people can't sign a title to an asset (such as a bank account or house) over to another person, probate court must be used to transfer the asset to the appropriate family member or friend.

One of the biggest misconceptions that people have is that if they have a will their assets will not have to go through probate court. This is 100% wrong! In fact, the will only controls those assets stuck in the name of the dead person which have to go through probate court. Let me give you an example. A man has a will that leaves everything to his son. His only assets are a car in his name alone, a life insurance policy listing his 3rd cousin as beneficiary, and a bank account in joint names with his business partner. Even though the will says that his son is to receive everything, only the car is controlled by the will and goes to the son. The 3rd cousin will receive the life insurance proceeds and the business partner will receive the bank account.

Another misconception I hear quite often is, "I don't want my assets going through probate court because I don't want the government getting my money". If you die in 2009, Federal Estate tax only affects your beneficiaries if your assets total over $3.5 million (this figure will go back down to $1 million in 2011 if Congress fails to take any action beforehand). Federal Estate tax applies regardless of whether your assets go through probate Court. Although income tax may be owed on a 401k or IRA, most assets pass to a beneficiary tax free. The real problem with probate court is (1) it is time consuming, (2) it is a hassle and (3) your beneficiaries will incur attorney fees.

There are three primary ways to make sure your assets bypass probate court. You can list someone as a co-owner with right of survivorship. (I only recommend doing this with a spouse, because otherwise the co-owner's creditors may be able to attach your asset.) Secondly, you can list someone as a death beneficiary. (This is better than the first approach, but works only if the beneficiary survives you. It can also cause problems if you want to list more than one beneficiary, such as your three children.) The best approach is to list a revocable living trust as the owner or death beneficiary of an asset. The trust is not a person, so it does not die. Therefore assets titled in the name of the deceased person's trust do not have to go through probate court. Also you can list secondary beneficiaries in the trust document in case the main beneficiary dies before you do. A living trust is also very helpful if you become disabled since you can list a family member or friend as a backup trustee to manage your assets for you.

When someone dies, a family not only grieves but also has to take care of the deceased person's financial affairs. It is a wise idea to develop an estate plan with an attorney while you are alive so that you can reduce the work and expense to your family during this difficult time.