Avoiding Probate in Vermont: Your Estate Planning Options
Probate. The word itself can conjure up feelings of stress and confusion, in the best of times.
Losing a loved one is difficult enough, but navigating the complexities of probate in Vermont can add an unnecessary burden.
This guide will simplify the probate process, explain why it's often best avoided, and outline effective strategies to protect your assets and ensure your wishes are honored.
What is Probate?
Probate is the legal process of distributing a person’s assets, property, and personal belongings, collectively called their estate, when they die. How that’s done depends on whether the deceased person (the “decedent”) had a valid will.
Vermont Probate With a Will
If the decedent has a will, the probate process is relatively simple.
The court will determine the will’s validity.
The executor gathers the decedent’s assets and adds them to the decedent's estate.
The executor pays the decedent's outstanding debts, taxes, and other legal obligations.
The executor then distributes the remaining assets to the beneficiaries named in the will.
Vermont Probate Without a Will
When someone passes away without a valid will, it's called dying 'intestate.' In these situations, Vermont has specific rules, found in Title 14 of the Vermont Statutes Annotated, that determine how their assets are divided. Think of it as a pre-set plan the state follows when there's no will.
Here's a general idea of how it works:
If there's a surviving spouse:
If the person who passed away had no children, or if all their children are also the surviving spouse's children, then everything typically goes to the spouse.
If there are children from a previous relationship, then the estate is shared between the spouse and those children, following a formula set by Vermont law.
If there's no spouse:
The estate goes to the deceased person's children, grandchildren, and so on. This is done 'per capita at each generation,' which simply means that the children get their share first, and if a child has already passed away, their share goes to their children.
If there's no spouse or children:
The estate then goes to the deceased person's parents. If the parents are no longer living, it goes to siblings, and then to more distant relatives like grandparents, aunts, uncles, and cousins. The state has a specific order for this, as detailed in Vermont's intestacy laws.
If no relatives can be found:
In very rare cases, if no family members can be located, the estate goes to the State of Vermont. This is called 'escheat.'
It's important to remember that these are general guidelines. Every situation is unique, and it's always best to speak with an attorney for specific advice. Creating a will is the best way to ensure your assets are distributed exactly how you wish.
Why Avoid Probate?
While no two estates are the same, generally speaking, probate can be a complex, time consuming, and costly process. Most people want as much of their remaining assets to go to their loved ones as quickly as possible. Probate disrupts that.
Save Time
When a loved one dies, expenses can begin to pile up. Beneficiaries might need access to funds quickly for things like mortgage payments, funeral expenses, or to meet their basic needs.
On average, a relatively straightforward estate can take between 6 to 18 months before the assets are fully distributed. More complex estates with many assets, congested wills, or inheritance tax issues can take 2 years or more. Having beneficiary designations simplifies the process because the asset is automatically distributed to the designated beneficiary instead of being included in the deceased’s estate.
If probate is unavoidable, having a valid will can greatly expedite the process. Valid wills make it clear whose job it is to collect and distribute the assets (the executor) and who the beneficiaries are.
Save Money
Probate Fees
Probate costs the estate money. There are fixed Probate Division Fees in Vermont to open an estate and file paperwork. Simply filing to open an estate can range from $50 if the estate is $10,000 or less, to $3,250 if the estate is greater than $10 million. There can then be additional fees, such as for paying by credit card (2.89% for electronic filing). Probate fees are paid by the executor from the estate’s assets before distribution to pay for the court’s administrative costs. Every payment to probate reduces the estate’s assets, meaning less money for your loved ones.
Legal Fees
Many executors seek legal assistance to ensure that the probate process is done properly according to state law. Legal fees vary widely by firm, estate, and state. While some attorneys offer free consultations, most charge fixed rates for probate services and hourly rates for additional work. Others may take a percentage of the estate’s value (typically 1-5%); or some combination of these.
Legal fees are not always straightforward. Most attorneys, however, are able to provide you with a cost estimate if given basic information about the estate in question.
Executor/Administrator Fees
Executors and administrators can also collect a fee from the estate for managing it. This is often a percentage of the estate.
Reduce Stress and Family Conflict
Let’s face it, families get weird when money is involved. Particularly in stressful situations, like the passing of a loved one.
Having a valid will and clear procedures for the distribution of your assets when you die helps your loved ones by taking away the guess work. Making it clear who gets what and who is responsible for the distribution of your assets allows them to focus on their grief and supporting one another.
While there is no way to guarantee that your loved ones won’t raise disputes, removing the role of probate court is a great way to reduce the risk. Otherwise, any interested party can raise a claim and dispute distributions.
Not Having a Will
While not having a will may seem easier and cheaper in the short term, it may add additional costs that will be paid from your estate or directly by your loved ones. Intestate estates generally have increased legal fees as disputing parties may hire legal representation and will have to pay additional filing fees with the Probate Court. Having a properly drafted will can help avoid these family disputes.
Ways to Avoid Probate
Joint Ownership Options
Simply put, joint ownership with right of survivorship, is when two people own property where, if one owner dies, the surviving owner(s) automatically inherit the deceased owner’s share of the property without going through probate. This happens regardless of whether the deceased owner had a will. It’s as if the deceased owner’s share simply disappears, and the remaining owners absorb it. This makes it a popular choice for couples and other close relationships.
Individuals can have joint ownership of a wide range of things including a house, a car, a bank account, or other assets. In most states, joint owners must own equal shares of the property. However, in Vermont, joint owners can own equal or unequal shares.
Joint Tenancy vs. Tenancy by the Entirety
There are two types of joint ownership arrangements: “joint tenancy” and “tenancy by the entirety.” Both involve shared ownership and survivorship rights, however, tenancy by the entirety is exclusively for married couples or civil union partners. It treats the couple as a single legal entity owning the property. Tenancy by the entirety offers additional protection from creditors. Generally, property held as tenants by the entirety is shielded from the individual debts of either spouse. Meaning a creditor of just one spouse typically cannot seize property held this way. Joint tenancy, on the other hand, might leave a co-owner’s share vulnerable to their individual creditors. There may also be some estate tax advantages of owning property as tenancy by the entirety in certain situations.
How to Establish Joint Tenancy
To establish joint ownership with the right of survivorship, the ownership document (e.g. a deed) must clearly state the ownership arrangement. Specific requirements vary by state, so it’s essential to consult with a legal professional. Generally, the document should:
Explicitly state that the ownership is “joint tenancy with right of survivorship” or similar wording. Simply listing multiple owners isn’t enough.
Clearly name all joint tenants.
Be properly executed (signed and authorized) and recorded in the appropriate land records or with the relevant financial institution.
Is Joint Tenancy Right for You?
Joint tenancy can be a valuable tool for estate planning, but it’s not a one-size-fits-all solution. While it is a straightforward way to transfer property upon death, bypassing probate, once entered into you lose some control over the property. Joint tenants cannot sell or mortgage the jointly held property without the other joint owner(s)’s consent.
There are other factors to consider about joint ownership and potential implications on your estate. Before entering into any joint tenancy or tenancy by the entirety arrangements contact an estate planning attorney to discuss your options.
Pay-on-Death (POD) or Transfer-on-Death (TOD) Designations
Pay-on-Death (POD) or Transfer-on-Death (TOD) designations offer a remarkably simple and effective way to bypass probate in Vermont. These designations allow you to name a beneficiary who will automatically inherit the asset upon your death, without the need for court involvement.
While both POD And TOD achieve the same outcome - avoiding probate - they apply to different types of assets.
Pay-on-Death (POD) designations are specifically designed for bank accounts, such as checking, savings, and money market accounts. By adding a POD designation to your bank account, you instruct the bank to automatically transfer the funds to your named beneficiary upon your death.
Transfer-on-Death (TOD) designations, on the other hand, are used for securities held in brokerage accounts. This includes stocks, bonds, mutual funds, and other investment instruments. A TOD designation ensures that these securities transfer directly to your beneficiary without going through probate.
Setting up both POD and TOD designations is typically a straightforward process. For bank accounts, you can usually add a POD designation by contacting your bank and completing a simple form. For brokerage accounts, you’ll need to work with your broker to establish the TOD designation, which often involves similar paperwork.
The great advantage of both is that you, the account holder, retain complete control of the assets during your lifetime. You can access the funds, make trades, and even change the beneficiary at any time before your death. These designations offer a convenient and efficient way to ensure your assets pass smoothly to your loved ones, avoiding the complexities and costs of probate.
Living Trusts
A living trust is a legal document created during your lifetime that allows you to transfer ownership of your assets to a trust while you’re still living. You typically manage these assets as the trustee.
Upon your death, the assets are distributed to your chosen beneficiaries according to the trust’s instructions, completely bypassing the probate court process.
How a Living Trust Works
Creation: You (the grantor) create a written agreement that outlines how your assets should be managed and distributed, both during your lifetime and after your death. This document details the rules of the trust.
Funding: You transfer ownership of your assets from your individual name to the name of the trust.
Trustee Management: You typically act as the trustee during your lifetime, managing and using the assets for your benefit. You can also appoint a co-trustee who can manage the assets with you. A successor trustee is named to take over management if you become incapacitated or upon your death.
Beneficiaries: You name beneficiaries who will inherit the assets after your death. These can be individuals, charities, or other entities.
Distribution: Upon your death, the successor trustee distributes the assets to your beneficiaries according to the instructions in the trust document, bypassing probate.
Types of Living Trusts
Revocable Living Trusts are the most common type. You retain control over the assets during your lifetime and can amend or revoke the trust at any time. This provides flexibility if your circumstances change. Upon your death, the trust becomes irrevocable, and the assets are distributed according to its terms.
Irrevocable Living Trusts cannot be changed or revoked once they’re established (with very limited exceptions). It offers tax advantages in certain situations(e.g. reducing estate taxes or protecting assets for Medicaid eligibility), but it comes with a significant loss of control. Irrevocable trusts are often used for very specific estate planning goals and are not suitable for everyone.
Is a Living Trust Right for You?
A living trust offers several compelling advantages, primarily avoiding probate. This saves time, money, and keeps your estate matters private, unlike the public record of probate proceedings. Living trusts also facilitate quicker asset distribution to beneficiaries and provide a mechanism for managing your assets if you become incapacitated. Living trusts are particularly well-suited for those concerned about incapacity, privacy, or who have complex estates, including providing for beneficiaries with special needs.
However, living trusts come up with upfront costs, typically higher than creating a will, and ongoing administrative expenses. These include fees for setting up the trust, transferring assets, and administering the trust after your death, including potential trustee fees and filing fees. Living trusts also require careful planning and execution due to their complexity. Critically, the trust only controls the assets that have been formally transferred into it, requiring effort and paperwork. Therefore, if you have a very simple estate they may not be the best option.
Carefully weigh these factors and consult with an estate planning attorney to determine if a living trust aligns with your specific needs and circumstances.
Small Estate Affidavit
In Vermont, a small estate affidavit offers a streamlined alternative to full probate for very small estates that meet specific, strict requirements. It’s a way to transfer assets to beneficiaries without the complexities and costs of formal probate proceedings.
An interested person (usually a family member or beneficiary) can file a small estate affidavit with the probate court if the estate meets certain requirements. These are:
Maximum Value: The total value of the estate is $45,000 or less. This includes all assets, such as bank accounts, investments, personal belongings (jewelry, furniture, vehicles), and any other property the deceased owned. No asset can be excluded from this calculation.
No Real Estate: The estate cannot include any real estate. This is a critical limitation. Even a small piece of land or a house disqualifies the estate from using a small estate affidavit. The only exception is a timeshare, which, while technically real estate, is treated as personal property in Vermont for the purposes of small estate affidavits.
While a small estate affidavit is designed to be simpler, it’s still highly recommended to consult with an estate planning attorney or the Vermont probate court before filing. They can help you determine if the estate truly qualifies and ensure the paperwork is completed correctly. Errors in the affidavit can cause delays and complications.
Avoid the Stress of Probate, Begin Planning Today
Planning for the future is essential. Contact a qualified Vermont estate planning attorney today for a consultation to discuss your options and create a plan that meets your specific needs.
The information provided in this article is for informational purposes only, and is not legal advice. Please consult with 1 a qualified attorney for advice tailored to your specific situation.
