A key consideration when transferring wealth across generations is avoiding probate. Probate is the legal process of administering a decedent’s estate through the probate court. It often comes with time-consuming procedures, costly legal fees and potential privacy concerns. For those with significant wealth, minimizing estate and gift tax is also a major concern.
Below we explore key planning strategies and tactics to efficiently transfer certain types of assets to beneficiaries, while avoiding probate, and take a high level look at estate and gift tax planning.
>> For a primer on trusts, read “Understanding the Foundational Elements of a Trust.”
Creating a revocable living trust will directly pass assets to beneficiaries according to the terms of the trust document — avoiding probate altogether. Generally, assets are placed into the trust by changing the name on the asset title or on financial accounts to the formal name of the trust. The grantor of the trust becomes the trustee and maintains control over the assets during their lifetime.
However, upon death, a successor trustee, such as the surviving spouse or children, takes control of the trust and its assets. The successor trustee is responsible for distributing the assets to each of the beneficiaries listed in the trust. Note: a living trust does not eliminate the need for a will and should be coordinated through an attorney.
For personal investment accounts, married couples commonly use joint ownership with right of survivorship, which avoids probate at the first spouse’s death. Another option is to submit a form to individual financial institutions, choosing a Payable on Death (POD) designation for the account. Upon death, POD beneficiaries complete a notice of death form and provide a death certificate to initiate ownership transfer. Once processed, the deceased’s account is closed and the funds transfer to new accounts for the beneficiaries without passing through probate. Personal investment accounts can also be assigned to a living trust to avoid probate. This can be done by completing new account paperwork and signing authorization documents to retitle the assets to the trust’s name.
Shielding these accounts and policies from probate hinges on ensuring beneficiaries are up to date in the relevant documentation and is fairly simple to execute. Confirm and update beneficiary designations on retirement accounts and life insurance policies. For any account with a designated beneficiary, do not designate an estate as the beneficiary, as in most instances this would pull the assets into the probate estate.
When it comes to avoiding probate for titled assets — real estate, business interests and personal property such as cars and boats — the key is how ownership is structured and documented. If real estate is solely owned at the time of death, then it becomes a probate asset. Titling property appropriately in one of the following three ways can help avoid this outcome:
Business interests can pass ownership outside of probate by including either a transfer-on-death designation on the ownership certificate or incorporating the language in the entity operating agreement. At the time of death, the ownership can be transferred to the intended beneficiary via a transfer of ownership transaction. Alternatively, transferring a business interest to a living trust would also avoid probate.
Personal property items with legal titles, such as cars and boats, can be transferred at death to the intended beneficiary if a transfer-on-death designation was made with the title office, similar to real estate. In certain states, if no designation is made, the surviving spouse can still gain ownership outside of probate by taking a death certificate to the title office and completing a surviving spouse form. Each state has its own requirements related to the number of vehicles that can be transferred and/or a dollar value limitation. In some cases, titled personal property might end up being one of the few assets that does go through probate. The temporary nature of owning a car makes it more difficult to avoid probate on the car(s) one might happen to own upon death.
Ancillary probate is defined as a secondary proceeding required when tangible property is owned outside of the decedent’s resident state, including real estate or personal property. That means an individual with a home or property outside their own state must anticipate a second probate proceeding, including paying a second attorney in another state to handle the probate filings with the county in which the property is located. The same strategies mentioned above — survivorship deeds, transfer-on-death deeds and trust titling — can be used to avoid ancillary probate for out-of-state property, but it’s important to have something in place sooner rather than later.
Personal property items without legal title tend to be forgotten. To ensure these assets avoid probate, an attorney can draft what’s known as an “assignment agreement” allowing an individual to transfer rights in the stated property at death to another party, such as their children or a living trust. This approach would allow the assets to avoid probate.
Individuals can gift a certain dollar amount of assets during their lifetime free from gift tax. The caveat is the IRS requires taxpayers to annually report any such gifts on a gift tax return. Only gifts over a threshold amount need to be reported on the annual Form 709 filing, which is $19,000 per donee in 2025 and 2026. Married couples file separate returns, so each spouse can gift $19,000 per donee without filing. No gift tax is due as long as the total gifts over time equal less than the lifetime estate and gift tax exemption. For 2025:
There are a multitude of considerations when trying to ensure your assets don’t end up in probate and to minimize gift and estate tax. Speak with your legal and tax teams to begin exploring your options.
Contact Laura Sefcik, Gary Dunn or a member of your service team to discuss this topic further.
In this blog Cohen & Co is not rendering legal, accounting, investment, tax or other professional advice. Rather, the information contained in this blog is for general informational purposes only. Any decisions or actions based on the general information contained in this blog should be made or taken only after a detailed review of the specific facts, circumstances and current law with your professional advisers.