How to avoid payment of creditors by staying outside of probate

Many clients have heard the horror stories of probate. They are desperate for a Living Trust. Often, however, a Living Trust is not best for their estate plan; the cost isn’t justified by their situation.

One reason to avoid the probate process is creditors. Creditors only have access to assets of a decedent which pass through the probate “funnel.” Assets which pass through other “funnels” are not exposed to creditor claims. For example, life insurance policies with a named beneficiary bypass the probate process altogether. So if there are one million dollars in claims against the decedent and the decedent had a one million dollar life insurance policy naming his child as beneficiary, the creditors get nothing.

And not just life insurance, there are other “funnels.” Real Estate owned as Joint Tenants with Rights of Survivorship similarly avoid probate. So does joint bank accounts or accounts with Payment of Death designations. Also, Life Estate Deeds. And Living Trusts operate similarly as “funnel” outside probate.

This is a reason not necessarily to get a Living Trust but to coordinate your estate to take advantage of these other funnels in addition to your Estate Plan. Remember: an estate is much more than a Last Will.