As a general principle, there are four ways to avoid probate in Utah:
(1) An asset that is held in the decedent’s revocable trust is not subject to probate.
(2) An asset that is held in joint tenancy is not subject to probate.
(3) An asset that has a valid beneficiary designation attached to it is not subject to probate
(4) If the only property that would otherwise be subject to probate has an aggregate value of $100,000 or less, and if none of such property is real estate, that property need not pass through probate.
Revocable Trusts. An asset is subject to probate only if it is held in the decedent’s name as an individual at the time of death. As asset that is held in the decedent’s revocable trust at the time of death avoids probate because it is not owned by her in her individual capacity. Rather, it is owned by her in her fiduciary capacity, as trustee of her revocable trust. This simple distinction is enough to avoid probate. But title to the asset must actually be held in the name of the trustee of the revocable trust. It is not sufficient just to have an unfunded revocable trust.
In general, a revocable trust is the best way to avoid probate. Other methods often have short-comings, as discussed below. For a discussion of revocable trusts in Utah, see the blog captioned “What a Revocable Trust Does – and Does Not Do,” which was posted on this site on July 27, 2012 and the blog captioned “Do I Need a Revocable Trust in Utah?” which was posted on this site on August 18, 2012. See also Basic Utah Estate Planning Information on this site.
Joint Tenancy. Holding title in joint tenancy avoids probate on the death of the first joint tenant to die. Title passes to the surviving joint tenant by operation of law. But joint tenancy is an inadequate solution for several reasons. First, property held in joint tenancy may be subject to the creditors of either joint tenant. Thus, adding an intended beneficiary as a joint tenant may subject the property to that person’s creditors during the lifetime of the initial owner. Second, while joint tenancy avoids probate on the death of the first joint tenant to die, we never know who will die first. If one adds an intended beneficiary as a joint tenant and that person dies first, we’re back where we started. And if the initial owner is mentally incapacitated when that happens, she will be unable to name another beneficiary. Third, holding an asset in joint tenancy avoids probate only for that asset, and it has the disadvantage of removing that asset from a larger integrated estate plan. If the composition of the decedent’s assets changes before the decedent dies, or if the respective values of her assets change before she dies, using a joint tenancy arrangement may result in a different allocation of value among the beneficiaries than she intended.
Beneficiary Designation. A beneficiary designation avoids probate, but like joint tenancy, it avoids probate only for that asset and does not fit conveniently into an integrated estate plan. However, in some cases, the use of beneficiary designations is advisable, and perhaps even necessary. For life insurance policies, the use of beneficiary designations is often appropriate to keep the policy proceeds out of the probate estate and to minimize estate taxes. And for retirement plans, the use of a beneficiary designation is often appropriate in order maximize income tax deferral opportunities for the beneficiaries. But for other assets that sometimes offer a beneficiary designation option, like bank accounts and brokerage accounts, designating a beneficiary may be problematic.
Small Estates. Utah Probate Code §75-3-1201 provides that no probate is needed (1) if the value of all estate property that would otherwise be subject to probate (minus the amount of liens against such property) is no greater than $100,000, and (2) if none of such property is real estate. If these conditions are satisfied, a bank or brokerage firm is required to turn over the decedent’s funds upon receipt of an affidavit stating that the recipient is entitled to the funds.
Rust Tippett is the author of this blog post.
Copyright 2012 UNLEPI, LLC, a Utah limited liability company. All Rights Reserved.
This blog post in no way creates an attorney-client relationship between the reader and either Robert S. (Rust) Tippett or Bennett Tueller Johnson & Deere, LLC. The reader should consult with his or her own estate planning attorney regarding his or her particular circumstances.