As estate planning specialists, we often see clients who want to avoid probate at all costs. Probate is the legal process of settling a deceased person's estate and distributing their assets to their heirs. While probate can be time-consuming, expensive, and public, sometimes avoiding it causes more problems than it solves.

The two most common probate-avoidance techniques that lead to problems are jointly titling assets with your beneficiaries and designating beneficiaries on everything. Both methods can result in multiple beneficiaries owning assets together, with no obligation to one another to consider what is best for the other.

For example, suppose you own a house and add your son as a joint owner. You may think this will make it easier for him to inherit the house when you die without going through probate. However, there are several drawbacks to this approach.

First, the IRS might consider this a gift and expect a gift tax return. Depending on the house's value, you may have to pay gift taxes or use up part of your lifetime gift tax exemption.

Second, adding owners to an asset during a lifetime can undo one of the most significant tax benefits available, which is the step up in basis for capital gains tax purposes. When you die, your son will inherit your share of the house at its fair market value, which means he will not have to pay capital gains tax on any appreciation during your lifetime. However, if you add him as a joint owner before you die, he will only get a step up in basis on half of the house, and he will have to pay capital gains tax on the other half when he sells it.

Third, adding owners to an asset expands the pool of creditors who could collect against that asset if any owners pick up unexpected liabilities. For instance, if your son gets divorced, sued, or files for bankruptcy, his creditors could go after his share of the house, even if you still live there.

Similarly, designating beneficiaries on everything can also create problems. Many think that by naming beneficiaries on their bank accounts, retirement accounts, life insurance policies, and other assets, they can avoid probate and simplify their estate plan. However, there are two significant drawbacks to this strategy.

One is that there is no way to control or protect distributions made to people via designated beneficiaries. For example, suppose you name your daughter as the beneficiary of your IRA. In that case, she will receive the entire account balance when you die, regardless of her age, financial situation, or personal circumstances. She may not be ready or able to manage such a large sum of money responsibly. She may also lose some of the tax benefits of inheriting an IRA if she withdraws too quickly or does not follow the required minimum distribution rules.

The other problem is remembering the designated beneficiaries on which asset and keeping those instructions updated as things change. They can be tough to revise after death if outdated or incorrect. For instance, if you name your spouse as your life insurance policy beneficiary and then get divorced, you may forget to change the beneficiary designation. If you die without updating it, your ex-spouse might receive the death benefit instead of your current spouse or children.

What are some of the benefits of the probate process that these avoidance techniques can miss? One is that it puts one person in charge of making the best decisions for everybody. This person is called the personal representative or executor of the estate. They have a fiduciary duty to act in the estate's and its beneficiaries' best interest. They must also follow the instructions in your will or trust if you have one.

Another benefit is that probate provides a forum to resolve disputes or modify the plan if necessary. For example, if there is a conflict among your heirs over how to divide your assets or who should inherit what, probate can help settle these issues through mediation or litigation. Probate can also allow changes to be made to your plan if unforeseen circumstances affect your beneficiaries' needs or wishes.

And finally, probate ensures that all interested parties have access to the same information. Probate requires that all assets and debts of the estate be inventoried and appraised. It also requires that all creditors be notified and paid before any distributions are made to the heirs. Probate also requires that all beneficiaries be informed of their rights and entitlements under the law and their will or trust.

In conclusion, avoiding probate is not always a good idea. Sometimes, it can cause more problems than it solves. Suppose you want to avoid probate without creating unintended consequences for yourself or your loved ones. In that case, you should consult an experienced estate planning attorney who can help you create a comprehensive and customized plan that meets your goals and protects your assets.