Attempts to Avoid Probate Gone Awry Part I

An effort to avoid probate at all costs can go awry. There are so many people who say, “I don’t want any part of probate. I’ve heard all of the horror stories.”

What is the main way that clients seek to avoid probate? Through the use of Transfer on Death Designation (TOD) Affidavits. These affidavits allow an individual to leave their property directly to someone else after death. The someone can be individual(s), a trust, or a business entity. It seems like a pretty nice plan. No probate court. No delay. Who wouldn’t want that?

There are a few downsides. An individual’s homeowner’s insurance does not extend to the new owner under a TOD Affidavit. This means that if the house burns down one day after the death of the owner, the house is not covered. This situation was tested in court in Ohio. The insurance company won the appeal. No coverage.

So you could ask, what are the odds of that happening? I don’t know. I do know that your homeowner’s insurance wouldn’t just cover fire damage. What about a power outage in the winter? No heat could lead to frozen waterlines that cause a lot of damage. What about a storm that causes a large tree limb to fall and damage the roof in a thunderstorm? Who’s going to foot the bill for the repair?

Just think about this as a practical matter. If a family member suddenly passes away, is someone going to immediately call a homeowner’s insurance agent? No. It’s not anywhere on the radar of things that must be done after a death.

This was all done to avoid probate. Are we really further ahead? I don’t think so. What would happen if the real estate had gone through probate? The insurance coverage would likely have extended to cover the executor during the period of the estate administration.

As you can see, estate planning is not a “one size fits all” process. Ever action has an equal and opposite reaction.