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4 Horrible Ways to Avoid Probate

I have been helping my clients get organized financially for over 45 years.  I have seen many successes and some disasters. One of the worst disasters is to not take action against having your estate probated in court.  Probate, which is where the court must “prove” or settle your estate for you since you did not take any action to settle it for yourself before your death, is an expensive process. It’s better to avoid but some people, in an effort to get out of probate and not wanting to take the time and trouble to set up a will or trust, try to do estate planning themselves and end up hurting the ones they love.  
I love the following 2009 article by Jack Helgesen about the four bad ways to avoid probate in the state of Utah. Although it is specific to this state, the ideas Helgesen conveys about the wrong way to go about avoiding probate can be applied across almost all states. 
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Bad way # 1: Put your kids on the deed.  Marie’s heard she could avoid probate by putting her four children on the deed to her home. The deed cost her a fortune. Five years later, Marie’s daughter Terry filed bankruptcy after an accident. Her creditors discovered Marie’s deed and the court ordered a sale of Marie’s home to pay Terry’s debts. To save the home, Marie’s other children jointly signed a new mortgage to pay Terry’s creditors. The IRS discovered the deed and mortgage and denied Marie the tax IRS Rulesdeductions for the mortgage interest. The IRS also required a gift tax return for the value of the house. When she sold the house to pay the mortgage, Marie lost the once-in-a-lifetime tax exemption
for most of the house. She and her children paid over $30,000 in capital gains tax caused by the deed.
Bad way # 2: Sign an unrecorded deed for your property. Some Utahns think they can avoid the problems above by signing a deed but not recording it in the county records. This is risky. A deed which is recorded years after its signing can cause title problems. Living in a property for years after you deed it to another can suggest the deed is invalid, and may open the deed to an attack by creditors or other heirs. If the deed is accepted, large taxes may result from a transfer on the signature date.  Sometimes, the deeds are not found or are discarded by heirs who do not like the result. In other cases, they are forgotten and contradict estate plans created after the deed.   
 Bad way # 3:  Give away your property just before death.  Death-bed transfers of property are common. Two weeks before his Cemeterydeath, Robert signed deeds transferring his rental property and farm land to his children. He died not knowing his deeds had cost his family more than $100,000 in capital gains taxes on all of Robert’s gain on the property. If Robert had let the property pass through his will or trust – just two weeks later –  his heirs would have had no tax. 
 Bad way # 4.  Make one of your heirs the co-owner of your bank or brokerage account.  Thousands of Utah citizens have done this without realizing the heir will be treated as the sole legal owner of the account after the original owner dies. This creates the risks and problems described above. Don’t do it.  
 If you want to avoid probate, create a living trust, which satisfies Utah law.  (Published October 1, 2009, © 2009 UtahElderLaw.com)

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