How to Avoid Probate on a House When a Will Isn't Enough

What a will actually does

A will does not keep your house out of court. Not in any state, no matter who wrote it. And once the house is in there, the file is public. Anyone can log on and read what you owned and how much your kids got, which is why families in probate start getting mail from strangers.

In most states, whoever holds the will has to hand it to the court within 10 to 30 days of death, whether a case opens or not. What decides that is what's still sitting in your name that morning.

Your house is sitting in your name that morning. You can't sign the deed anymore, and nobody else is allowed to either, so a judge appoints someone who can. That's probate. It's the process for getting a signature onto a deed after you're gone, and that signature is the problem you're solving when you look up how to avoid probate on a house.

What the court costs on a median house

Seven states set probate fees in statute, and California is the cleanest of them, so walk through that one. The fees are charged on what the house appraises for. Your equity and your mortgage don't count at all.

The median house sold for about $434,000 this summer. The first $100,000 is charged at 4%, which is $4,000. The next $100,000 at 3%, another $3,000. The remaining $234,000 at 2%, about $4,700. That's an attorney's fee of about $11,700. If you still owe $150,000 on the house, it's figured on the full $434,000 anyway.

Then there's the waiting. Six months is the floor, and with a house in it, nine to 18 months is normal, partly because every state holds the estate open for creditor claims. In New York that window alone is seven months, and someone has to keep paying the taxes and insurance the whole time.

Everything else you own already skips probate

Your 401(k) has a beneficiary form. So does your IRA and your life insurance. Your bank account can take a payable on death form and your brokerage a transfer on death form. Every one of those skips the court completely, because the money moves on the form, in days instead of months. The form also trumps the will. If your 401(k) form still names your ex-wife, your ex-wife gets the 401(k), and nobody asks what the will says.

Every large piece of your retirement already has that built in. Except the house. No deed comes with a beneficiary form. If you want your house to have one, you have to create it yourself.

The transfer on death deed

There are three ways to do it, and they all work the same way. You change what the deed says before you die instead of asking a judge to change it after. The first is the transfer on death deed, which some states call a beneficiary deed. Same document. You fill it out now, record it at the county now, and it does nothing until you die. Until then your son owns no part of the house, so he can't sell it or borrow against it and his creditors can't touch it. You keep the right to sell, refinance, change who gets it, or tear the whole thing up with a recorded revocation. The day you die the house is his, with no court case and no fee calculated on the appraised value.

About 30 states plus Washington, D.C. allow these, and what counts is where the house sits, so a cabin in Ohio follows Ohio's rules. The cost is a form, a notary, and a county recording fee, in most places $30 to $100.

Name a backup if your state lets you, because if your son dies first with nobody else named, the house goes right back to probate. And understand that the deed does nothing while you're alive.

Lady Bird deeds and living trusts

The second document is the Lady Bird deed, available in five states: Florida, Michigan, Texas, Vermont, and West Virginia. It works the same way, and it matters most in Florida, which won't record a transfer on death deed at all. It also puts the house out of reach of Medicaid estate recovery, the state coming after your house to get paid back for nursing home care.

The third is the revocable living trust. It does everything the deeds do and more. It's private, and if you're incapacitated, the person named to take over handles things without a court. But a trust is two steps, and the second one is where things fall apart. Step one is signing the trust. Step two is deeding the house into it and recording that deed at the county. If step two never happened, the house is still yours and it goes to probate as if the trust never existed.

This one happens over and over. A family does everything right, trust signed, house deeded and recorded. Then in 2017 mom refinances. Plenty of lenders won't lend against a house sitting in a trust, so title moves into her personal name for the closing and nobody moves it back. Nine years later that house is the one thing they own that has to go through probate. The pour over will that came with the trust doesn't save it. It sweeps the leftovers into the trust, and the leftovers still go through court on the way.

The county never reads your will or your trust. It reads the deed. So take 10 minutes, look up your address on your county recorder's site, and read the name on the most recent deed. If it says your name and you thought the house was in your trust, you found something to fix.

Why adding your son to the deed costs more than probate

There's a fourth move people make, adding a child to the deed as a joint owner. It does work. Joint tenancy with right of survivorship means the day you die, your half goes to him automatically, with no probate on the house, and it costs nothing but a trip to the county. The tax side is where it turns expensive, and nothing on the deed warns you.

Say you bought in 1998 for $80,000 and today it's worth $434,000. The day you add your son, you've given him half the house, a gift of about $217,000, and the IRS wants a Form 709 for it. A gift made while you're alive carries your cost basis, so his half has a basis of $40,000. When you die, your half steps up to $217,000, and his half still sits at $40,000 because he already owned it. He sells for $434,000, his share is $217,000 against that $40,000 basis, and the gain is about $177,000. At 15%, that's $26,500 in federal tax, plus whatever his state takes. A transfer on death deed would have given him the whole house stepped up to $434,000, with nothing owed on a sale. So it's $26,500 spent to dodge a probate fee of $11,700.

The tax is only the first part. You can't sell or refinance without his signature anymore. If he gets divorced, sued, or files for bankruptcy, your house is on the table, because he's a legal owner. And in some states, California among them, adding a name to a deed triggers a property tax reassessment.

Two caveats on that $26,500. I used the 15% capital gains rate, and his income could put him at 0% or 20%. And if he lived in the house two of the five years before selling, he can exclude up to $250,000 of the gain. Even then, all three documents get him the same house with none of these headaches attached.