It's All in the Title
If you die without a trust, and have only a will at your death then all of your assets go to probate, right? Not necessarily...
First, some estates are of insufficient size to trigger a probate, here in California this generally means having real estate and personal property with a combined value of $100,000 or less.
Second, assuming you have assets of size that would trigger a probate, the next issue as to whether a particular asset goes to probate is generally determined by how the asset is titled (or how an asset is "held").
Some of the more common asset types include:
1) Real Estate
2) Bank Accounts
3) Investment Accounts
4) Life Insurance
(This list is not all-inclusive, nor exhaustive, but hopefully a good starting point to think about how your own assets are titled)
Regarding real estate, it is possible for your real property to avoid being included in a probate when it is titled in a joint form that includes the "right of survivorship" provision. An example of this would be when one spouse of a married couple passes away, and the family home is titled in joint tenancy with right of survivorship. California now has a Community Property ownership form with right of survivorship, too.
Under a survivorship title: when the first spouse passes away, the real estate is not a probate asset (of course this has no effect on other assets that may still trigger a probate for those other assets). So generally speaking, the joint form with right of survivorship prevents a probate, but it is not perfect or complete. For example, what if both spouses die at the same time, such as in an auto collision, then there could still be a probate of the family home, if its value is over $20,000 (or $100,000 when combined with personal property). Another problem involving a joint tenancy with right of survivorship is the potential loss of a full step-up in basis (which can help with reducing taxes on heavily appreciated property), but I will save this for another discussion.
Next, what if you are single? Some people put a child on the title of their real estate to avoid a probate at their death--however this can cause other problems like taxation issues, or what if the child becomes estranged from the parent over time and wants to enforce their rights to the property--talk about a nightmare heir!
Regarding Bank Accounts, there is a form of titling known as POD, meaning "Pay on Death." Here you set up beneficiaries to your account that are to receive funds deposited on your death. Bank accounts can also be in joint tenancy form with a right of survivorship provision, but be careful with bank accounts, because you might assume your account is titled one way, when in reality it is titled in a different way. Bank accounts can also be of a trust type, too. And another important consideration is that the form of titling can determine the amounts FDIC will insure for the account--and in today's market environment, relying on FDIC insurance is a real necessity.
Investment account options are usually similar to bank accounts.
Life insurance is essentially a POD contract. However, if you are not careful even the funds of a life insurance pay-out could trigger a probate.
Titling assets in a non-probate form is like creating a mini-estate plan for each asset. In essence each asset will have one or more beneficiaries attached to it. This has a huge downside, what if you change your mind--then you have to change every asset. And depending on how you created the title, that may not even be possible if you have already transferred ownership to someone else.
Whereas with a trust, you can just amend the trust and then all of your accounts, assuming they have already been "funded" into the trust, will be covered by your single trust amendment. Thus, avoiding probate is fraught with pitfalls when you change your mind in the future--and while it is technically possible (by thoroughly confirming that each and every asset you own is titled in a non-probatable format)--why do it when a trust makes avoiding probate a piece of cake???
