I recently received the following question from a reader of my Arizona Republic newspaper column:
My mother recently passed away. She wrote a will, but to avoid probate she left her residence to my three siblings and me by a beneficiary deed, put her bank accounts into my name, and left a list for the distribution of personal property. Now my siblings are accusing me of improperly handling her affairs. I thought that she created a bulletproof plan to avoid probate and now I am being advised to file for probate to protect myself. I’m confused.
Your mother used a common approach to death planning, using shortcuts to avoid probate. I will comment upon them separately.
- The beneficiary deed is effective to transfer title to real estate on death without probate. However, your mother needed to anticipate that she had four children who might not get along. Because you each own a 25-percent interest in the house you need a plan as to what to do with the house. The beneficiary deed has essentially left you in a partnership without an agreement. You all need to come to an agreement among the four of you to determine what you are going to do with the house. Your options range from selling it, renting it, one or more of you living in it, etc. If you cannot agree, the court system will be your only avenue of relief. I certainly hope that it does not come to this because it will be a costly proceeding and not everybody will be happy with the results. You might try to go to mediation before you consider court.
- Putting the bank account in your name is risky. First, the account is subject to your creditors. Second, it puts you in the position of appearing to have received the account either as a gift or bequest. Your siblings may not know what you intend to do with the funds.
- The property in your mother’s home is in her estate and is subject to the probate administration. In other words, to follow her instructions to distribute by a written list, you should have first been appointed as the personal representative to follow her instructions.
The reason that you are likely being advised to file for probate is to protect you in the administration of the estate. You can put the funds in the bank account into an estate account, publish notice to creditors, pay any lawful debts and then distribute to the heirs. You may also distribute the personal property in this manner. The current status leaves you in a very perilous and unprotected position. Probate will protect you and allow for orderly administration.
For those who feel that their estate is small enough to not require sophisticated estate planning, but who desire to avoid probate, there are alternatives such as the beneficiary deed, but there are risks. For example, the beneficiary deed causes the potential conflict among co-owners as discussed. Placing bank account funds in the name of one person has all sorts of risks as pointed out. The better approach would be to name all children as the beneficiaries of such an account so that the money is distributed equally. Other assets payable on death, such as life insurance or annuities, should also be payable to all beneficiaries.
The moral of the story is that sometimes the shortcuts to avoiding probate cause much more conflict and expense than doing it the right way, even if probate is needed.