In part one, I pointed out that in some cases probate can be a relatively simple process, in some ways easier than getting a loan from your bank.  Now I want to discuss reasons why probate can actually be preferable to some of the probate avoidance techniques.

Consider Louise.  Louise has 4 children, whom she wants to benefit equally. She lives off her husband's pension and some annuities.  There's never more than a few thousand dollars in her bank account.  Louise understands that her annuities don't have a death benefit, so those and the pension will end when she dies.   Louise's house is fully paid off and she has a car.   She knows that the bank account and the car can be transferred to her children by way of a small estate affidavit (more on that in another post).   However, the house cannot be transferred in this way. 

So, Louise is thinking about a beneficiary deed naming her 4 children to receive her house when she dies.  This type of deed is sometimes called a Ladybird deed.   It is completed and recorded while Louise is alive.  Yet it operates like naming the beneficiary of life insurance.  Louise continues to own and control the property.  She can rent it or sell it (but a mortgage company probably won't lend her money while the deed is in effect).   Louise can revoke the beneficiary designation whenever she wishes.  If she doesn't revoke it, all it will take to make her 3 kids owners of the house is to record her death certificate. 

Sounds good, huh?  But consider this, once Louise dies, her 4 children now have equal rights regarding the house.   They'll have to agree on a realtor and a sales price.   If one wants to sell immediately at fire sale prices, he may be at odds with another who wants to invest in some updating and get top dollar.  If one doesn't contribute her share of taxes, insurance or utilities, the others may have to go to court or let the sibling get more than her fair share when the house sells.  Louise would essentially make her children equal partners in a real estate deal.  That may avoid probate at the expense of family harmony.

Oh, and there's the issue of Medicaid.  In Colorado, neither Louise nor her children will qualify for Medicaid as long as the beneficiary deed is in place.  So, Louise might have to revoke the beneficiary deed if she cannot afford to pay for her long-term care. 

Alternatively, if Louise makes a will naming one of her children as personal representative, the probate court will appoint that child to manage the probate estate.  That child can sell the car and collect the bank account to pay for the taxes, insurance and utilities for the house.  There may even be enough to do some updating.    The personal representative can make decisions about when and how to sell the house.  While the personal representative has to act in the best interest of all 4 children, she does not have to get all 3 to approve every act. 

In Louise's case, the probate process can have positive benefits in naming one child to be the "manager" of the estate without expecting or forcing all 4 children  to agree on all decisions, large and small.  Are there other ways to avoid probate and still not expect the children to be business partners?  Yes, Louise could place the house and other probate assets in a trust.  Then one or two of the children could be successor trustee without having to be appointed by a court.  But Louise may decide that the cost of a trust coming out of her pocket now is greater than the cost of a probate that comes out of her estate later.  Only Louise can really know which decision is right for her and her family.

Next post:  Potential problems with Small Estate Affidavits.