There are numerous ways to avoid probate.  Advisors and their clients are becoming more savvy to the use of some of these probate-avoidance devices, including transfer on death beneficiaries for bank accounts, retirement plans, etc.  As I've been known to say before, avoiding probate is good, but it should not be the tail that wags the dog.  In other words, make sure that avoiding probate doesn't overshadow or prevent the other goals you have, such as treating family fairly or avoiding family disputes.

I've encountered an increasing number of estates where avoiding probate actually cause more problems and prevented more important goals.  For example, one client came to me and asked me to serve as her personal representative (aka executor) for her estate plan.  She wanted some of her assets to go to her estranged daughter, but she knew no one in her family wanted anything to do with that daughter, not even to give the daughter her share of my client's estate.  My client knew I would do as she wished.

Now the client has passed, but I find that the client didn't follow my advice to leave her bank accounts without a beneficiary designation. All of her assets will pass by beneficiary designations.  The bank will just issue a separate check to each beneficiary for his or her share of the accounts.  So there is no estate for me to administer.

Why is that a problem?  There's nothing with which I can pay the bills.  I'm not talking about making the credit card company richer, I'm talking about bills to carry out the last wishes.  This client had a pre-paid funeral plan, so at least we dodged that bulled.  But that bill to move the furniture out of her apartment and into storage?  Paid by her brother but I can't reimburse him.  The last utility bills that her brother had cosigned on?  He's on the hook and I can't reimburse him.  That last tax return?  I'm required to file it but I don't have any money to prepare it or pay any taxes due.  So, I'll be telling the IRS to go after the beneficiaries.  Even though these are legitimate bills and having them paid benefits ALL of the beneficiaries, there is no way to force all of the beneficiaries to bear the burden.  Each beneficiary will get his or her check separately from the bank.  A beneficiary may choose to help pay these bills, but we don't have a mechanism to force a contribution.  So the brother may bear all the burden from his share of the estate while the others get all of their share without paying anything toward the bills.

And what will happen if we get a small check in the deceased woman's name?  Maybe it's a return of premium on some of her health insurance.  Could be worth maybe $150.  Problem is, no one can cash it UNLESS we have a probate, and the filing fees alone to open a probate are $200.  So that check may never get cashed. 

In another case, a man had provided in his will that each of his grandchildren get a few thousand dollars at his death.   A token of his love for them.  Some of these grandchildren were the children of his deceased son.  But, like the woman I just described, he had all of his assets passing by beneficiary designations.  In this case, the bank accounts and investment accounts went to his surviving children. There was no money in the estate to give to the grandchildren.  While the grandchildren whose parents got something from the beneficiary designations may have been able to get something from their folks (I'm not so sure they did), the children of the deceased son could not even go that route.   That was definitely an estate plan that did not work. 

As  this website points out, "The job of estate administration and accounting must be done regardless of whether an estate goes through the probate process or probate is avoided." This and many other reasons are why Michigan Legal Aid suggests you think twice about avoiding probate. 

So am I advocating that everyone should go through probate?  Definitely not.  First off, other probate avoidance techniques such as proper use of a living trust do not bring these problems.  Second, even the use of beneficiary designations for bank accounts, investment accounts and life insurance can be very useful so long as there is some thought given to create liquidity for paying those last expenses.  In the case that is in front of me, the client trusted the brother to pay the bills, and indeed he has.  If she had named him as the sole beneficiary of a small bank account, he would have been able to pay the bills from that account.  Note he would not have been required to pay the bills from that source, so the client would have had to trust the brother.   She did trust him, but if you don't have anyone you trust that much, than maybe it is all the more important that your estate have the accountability built in to a living trust or, if a living trust doesn't suit your circumstances, a probate proceeding.