Very often, a house or other real estate is the property that triggers probate. The threshold is only $150,000, and in California that is not hard to meet.
Probate can be a major inconvenience to the beneficiaries. However, you can avoid it altogether by setting up a living trust and transferring title of real estate into the trust. This is the best and most flexible way to accomplish this, but let's look at some other options.
You can avoid probate by owning your house in joint tenancy with another person. If you die first, your share of the property will pass to your co-owner without probate.
However, if the other joint tenant dies first, then you are back where you started. If you subsequently die without fixing the situation, your house will go through probate. Additionally, the living trust has capital gains tax advantages over joint tenancy for inherited property.
Community property with right of survivorship
This is similar to joint tenancy, but is only available to married couples. It offers tax advantages over joint tenancy, but otherwise it has the same limitations.
Revocable transfer on death deed
A transfer on death deed is a document you can record that names a beneficiary of real property after you die. Property that passes via this method will avoid probate. Unlike joint tenancy, you don't have to transfer ownership while you are alive.
Unfortunately, in other ways, this has the same disadvantage as joint tenancy. You can't name a contingent beneficiary. This means that if your beneficiary dies first, you have to execute a new TOD deed to avoid probate.
Gifting the property while you are alive
Another way to avoid probate is to give away your property while you are alive. However, you will have to file a gift tax return and you no longer own the property. The recipient of the gift also will not benefit from the step-up in tax basis that they would from an inheritance.
Revocable living trust
A living trust not only allows you to avoid probate, but you can name multiple contingent beneficiaries, you retain full control over your property, and your beneficiaries will receive the step-up in basis at your death. Additionally, it has the added benefit of planning for death and disability (if you become unable to manage your affairs).
A revocable living trust offers many advantages for putting your estate in order and providing for your loved ones after you're gone. Although there are alternatives, they are very limited and do not have the same benefits as a trust.
Helix Law Firm can help with estate planning
If you would like to set up an estate plan, including a living trust, we can help. We will sit down with you and discuss your situation, make a recommendation, and craft an estate plan that works for you and your goals.
If you're interested in learning more, please call us at (619) 567-4447 to schedule a free consultation.