After your death, someone needs to manage your affairs. For example, you may owe money to creditors, own property, or possess assets that need to be distributed to heirs. In many cases, these tasks are carried out under probate.
Why You Should Avoid Probate
Avoiding probate is a common goal, but the process is not necessarily complicated. However, submitting to probate has potential drawbacks, and it is important to understand what you are facing and decide whether you prefer to avoid probate or not.
Cost
Probate costs can reduce the amount remaining for heirs. The probate process can include court fees, attorney fees, appraisal and valuation fees, and other costs. The personal representative may receive compensation for the time and effort required to complete the process, and your state may impose additional fees. Ultimately, probate costs can range from 2% to 5% of the value of the assets. However, in some cases, the cost may be lower, or it can rise in complex situations.
Delay
Probate takes time, which can increase stress or leave heirs in a difficult financial position. In some cases, the process can take months or years to complete. However, other methods of transferring assets (such as naming a beneficiary) can help others access funds more quickly.
Claims and Disputes
By avoiding probate, you reduce the chances of creditors or disgruntled family members claiming the deceased’s assets. Because the probate process is slow and part of the public record, others may have an opportunity to intervene. However, probate avoidance strategies can help reduce problems.
While you can save time and money by avoiding probate, it is not always the right choice. In some cases, going through the probate process helps ensure the resolution of outstanding claims and handling of complex matters. Speak with an estate planning attorney to determine if going through probate is appropriate.
Four Ways to Avoid Probate
Avoiding probate is not difficult, and you have various options to do so. Probate avoidance strategies typically focus on reducing the size of your assets. If the value of your assets is below certain thresholds set by your state, you may be eligible for a simplified probate process.
Create a Revocable Living Trust
Assets owned in trusts are generally not subject to probate. Instead, the trust document specifies what happens to the assets after your death. For example, the trust might state that beneficiaries receive a certain amount or that the trust distributes funds when beneficiaries meet certain goals (such as reaching age 25 or graduating from college).
By using a revocable living trust, you can maintain control over your assets during your lifetime. This way, you can spend the funds as needed or update the trust if your wishes change.
Name Beneficiaries for Your Accounts
You can arrange for certain accounts to transfer directly to a beneficiary after death. Instead of having the assets go through probate, the funds bypass probate, reducing the size of your estate subject to probate. You can name beneficiaries for retirement accounts and life insurance policies, which can provide tax benefits for heirs. Check with your accountant and other financial professionals to design a strategy that manages taxes and meets your estate planning goals.
In some cases, taxable accounts and bank accounts can have beneficiaries. By using “transfer on death” or “payable on death” registration, the named beneficiary can gain control of the account with relative ease.
Owning Property Jointly
When you own property as joint tenants with right of survivorship, those assets automatically go to the joint owner (or owners) after your death. As a result, they will not be part of your estate subject to probate, and your will will not dictate how those assets are distributed. It is common for spouses to own property jointly, which simplifies the management of household assets and eases the burden on survivors after death.
And with…
There are many types of property ownership, and not all operate like joint tenants with rights of survivorship. For example, property owned as tenants in common may go to your estate, and things can get complicated in states that adhere to the tenants in common system.
Gifting Property Before You Die
Your estate consists of the assets you own at the time of your death. If you give away assets to others during your lifetime, you can reduce the size of your estate that is subject to probate, and it can be great to see others enjoying (or using in other ways) those assets during your life. For example, you might give money to your children or donate assets to charities.
Remember, you don’t know how long your life will be or what financial needs you will have for healthcare and other expenses. So ensure that you can live comfortably before you irrevocably relinquish control of those assets.
Conclusion
After the death of a loved one, the probate process can add a time-consuming and stressful task to all that survivors have to deal with. Additionally, probate costs money – sometimes a significant amount. With proper planning, it may be possible to avoid or simplify probate.
Simple tasks like naming beneficiaries can go a long way, and complex strategies can also help. If you’re concerned about how probate will affect your family members or your assets, talk to a licensed estate planning attorney in your state. This is the best way to get a realistic estimate of costs and you might gain some excellent ideas for managing your finances.
Frequently Asked Questions (FAQs)
How long does probate take?
The probate process can move quickly or slowly, depending on the complexity of the estate and state laws. In some states, probate must remain open for at least several months. When things become complicated or controversial, the process can take years.
What is the minimum value of an estate to go through probate?
Each state sets limits on when an estate is required to go through simplified or expedited probate. Check with your state or a local attorney to see if you qualify. Naming beneficiaries and other strategies can help reduce the size of your estate.
Does every estate have to go through probate?
It’s possible to settle an estate without going through probate. But the extent to which the courts are involved and the requirements for proving a will depend on state laws, property ownership, and other factors. Check with an attorney in your state or local officials to ascertain whether probate is necessary.
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Sources
The Balance only uses high-quality sources, including peer-reviewed studies, to support the facts in our articles. Read our editorial process to learn more about how we fact-check and ensure the accuracy, reliability, and quality of our content.
Fidelity. “Settling the Estate: Probate.”
Superior Court of California – County of Santa Clara County. “About Probate – How To Probate a Decedent’s Estate.”
Wessels Law Firm. “When Is Going Through Probate a Good Thing?”
Fidelity. “Is a Trust Right for You?”
American Bar Association. “Introduction to Wills.”
Nationwide. “Leave Money to Your Heirs.”
Wells Fargo. “Transfer on Death Designations: Advantages and Disadvantages.”
Charles Schwab. “Types of Brokerage Accounts.”
Source: https://www.thebalancemoney.com/how-to-avoid-probate-5667024
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