How Do You Avoid Probate in New York?

Navigating the complex world of estate planning in New York requires careful consideration of your assets and goals to determine the most effective strategies for avoiding probate.

What is Probate?

Settling a deceased person's estate and distributing assets to beneficiaries often necessitates probate court proceedings, which can be time-consuming and financially taxing. In New York, the probate process entails filing a petition with the Surrogate's Court, informing heirs, settling debts, and securing court approval for asset distribution. Depending on the estate's intricacy and potential disputes, this procedure may span several months to a year or more. Due to these court proceedings, probate expenses such as court fees, attorney fees, and executor commissions can substantially diminish the estate's value, particularly for smaller estates where they may consume a higher proportion of the total assets. Thankfully, New York laws offer several options to avoid probate, enabling property to transfer directly to beneficiaries without court intervention. However, these approaches require the property owner to plan meticulously and employ specific legal instruments and tactics before their passing.

Ways to Pass on Property Without Probate in New York

New York offers various strategies for passing assets to beneficiaries while bypassing the probate process, each with unique benefits and factors to consider. When aiming to avoid probate, it's advisable to consult an experienced estate planning attorney rather than attempting a DIY approach. This ensures the most suitable estate planning instrument is selected for each specific asset, aligning with the individual's goals.

Living Trusts

Living trusts are the best estate planning tools to avoid probate because it not only avoids probate but also guardianship proceedings in case you become mentally incapacitated. It can be created for nearly any asset type, including real estate, bank accounts, investments, personal property, and business interests. In this revocable living trust, the grantor creates the trust document, nominates a successor trustee, and transfers property ownership to the trust while the grantor is still alive. The grantor serves as trustee and beneficiary until death, then the successor trustee takes over without probate, managing and distributing assets according to the trust terms.

Co-Ownership

When property is held with the right of survivorship, it automatically transfers to the surviving owner upon the death of the other, bypassing the probate process. In New York, real estate can be co-owned with survivorship rights through two methods: tenancy by the entirety, which is limited to married couples, and joint tenancy with rights of survivorship, available to any joint owners, irrespective of their relationship. However, joint ownership with survivorship rights has its limitations. Once established, the arrangement cannot be unilaterally revoked, resulting in a loss of individual control over the property. Moreover, this estate planning tool lacks flexibility, as it cannot be altered or amended in response to changing circumstances, such as divorce or disputes between the owners.

Beneficiary Designations

Certain types of assets in New York enable the direct transfer of ownership to a designated beneficiary upon the owner's death, effectively circumventing the probate process. For instance, bank accounts can be set up with payable-on-death (POD) designations, ensuring that the account balance is promptly paid out to the specified beneficiary following the account holder's passing. Similarly, stocks, bonds, and other securities can be assigned transfer-on-death (TOD) designations, allowing these assets to be seamlessly transferred to the chosen beneficiary without the need for probate court involvement.

Other Concerns

To provide added convenience in managing their finances, some seniors opt to include a joint owner on their bank accounts, allowing this individual to assist with financial transactions. However, upon the primary account holder's death, the joint owner may attempt to claim full ownership of the account, even if the arrangement was intended solely for convenience. While joint bank accounts may seem like a practical solution, there are more suitable estate planning instruments available that can better serve the needs of elderly individuals.

Advantages of Living Trusts

Living trusts have emerged as the most widely favored estate planning instrument due to their unparalleled versatility and advantages. By establishing a living trust, individuals can effectively circumvent the time-consuming and costly probate process while retaining full control over their assets throughout their lifetime. Moreover, living trusts offer the flexibility to easily amend or revoke the trust provisions in response to evolving circumstances, ensuring that the trust remains aligned with the grantor's wishes. In the event of mental incapacity, a living trust serves as a robust safeguard against the initiation of guardianship proceedings, enabling the creator to continue managing their property and financial affairs seamlessly. Despite the marginally higher upfront costs compared to a last will and testament, the myriad benefits of a living trust far outweigh the initial investment, as evidenced by the following compelling advantages:

Immediate access to assets

When assets are held in a living trust, the successor trustee can quickly and easily assume control of the trust assets upon the trust creator's death or incapacitation. This immediate access to funds can be crucial for paying expenses, such as funeral costs, medical bills, and ongoing living expenses for beneficiaries. In contrast, assets that go through probate may be tied up for months or even years, leaving beneficiaries without access to much-needed funds during a difficult time.

Savings on probate and administration fees

Probate can be a costly process, with fees for attorneys, executors, appraisers, and court costs. These expenses can quickly add up, especially for larger estates. By using a living trust to avoid probate, the estate can save thousands of dollars in administrative costs. Additionally, the successor trustee can often manage and distribute the trust assets more efficiently than the court-supervised probate process, potentially saving even more in administrative expenses.

Privacy compared to public probate process

Probate proceedings are a matter of public record, meaning that anyone can access information about the deceased person's assets, debts, and beneficiaries. This lack of privacy can be unsettling for many families, particularly those who value their financial privacy or who may be concerned about potential challenges to the estate distribution. Living trusts, on the other hand, are private documents that are not subject to public scrutiny. The trust terms, assets, and beneficiaries remain confidential, providing an added layer of privacy for the family.

Allows additional tax-free gifts

In addition to the annual gift tax exclusion (which allows individuals to give up to a certain amount per recipient per year without incurring gift taxes), individuals can also make tax-free gifts by paying for someone else's medical expenses or educational tuition directly to the provider. By using a living trust, the grantor can authorize the trustee to make these types of gifts on their behalf, even if they become incapacitated. This provision allows for additional tax-free giving and can help reduce the size of the taxable estate.

Asset protection for nursing home costs with irrevocable trust

An irrevocable trust, a type of trust that cannot be easily modified or revoked by the trust creator, can be used to protect assets from being depleted by nursing home costs. By transferring assets into an irrevocable trust, the trust creator effectively removes those assets from their personal ownership. If the trust creator later requires long-term care in a nursing home, the assets in the irrevocable trust may not be considered part of their personal assets when determining eligibility for Medicaid benefits. However, it is important to note that there are specific rules and timeframes surrounding the transfer of assets into an irrevocable trust for Medicaid planning purposes, and it is essential to consult with an experienced elder law attorney when considering this strategy.

Navigating the complexities of probate avoidance in New York necessitates meticulous planning and the strategic application of suitable legal mechanisms. Engaging in a thoughtful dialogue with a knowledgeable estate planning attorney like us is paramount to identifying the optimal combination of estate planning instruments tailored to your distinct priorities and objectives. Should you need assistance, the Law Offices of Albert Goodwin are here for you. We are located in Midtown Manhattan, New York, NY. Call us at 212-233-1233 or email [email protected] to schedule a consultation.