The probate process occurs after someone passes away. Probate can be lengthy, complex, and expensive, but good estate planning can mitigate unwanted risks by anticipating and preventing problems before they arise. Sound estate planning can make the probate process run efficiently and smoothly, protecting your estate’s value and legacy, and preserving your family’s well-being.
- Validating a deceased person’s will
- Identifying and inventorying the property of the decedent
- Getting property appraisals
- Paying valid outstanding debts and taxes
- Distributing the remaining assets and property according to the will
- Applying state intestacy laws if there is no will
An estate planning attorney can structure your estate to minimize or avoid probate entirely. Circumventing probate reduces legal fees for your surviving heirs, protects privacy as probate is part of the public record, and avoids estate tax which can significantly reduce inheritable assets.
Popular Alternatives to Probate
A revocable living trust transfers assets to the trust but allows access to them during your lifetime. This probate-avoidance technique can protect any property you own, including:
- Bank accounts
- Real estate
- Art collections and heirlooms
A revocable living trust
This trust functions like a will by leaving your property to heirs, but you can change the terms of your trust and the beneficiaries or revoke it while you are still alive. After your death, the property in the trust is in the control of your named successor trustee. They distribute the property to inheritors according to the trust’s instructions without involving probate court.
Life insurance and annuity policies
Death benefits are paid directly to a designated beneficiary upon the death of the insured or annuitant and pass outside of probate. And in some states, for example, Texas, death benefits are exempt from creditor claims for either the insured or beneficiary.
Payable-on-Death (POD) accounts or Transfer-on-Death (TOD)
A simple, no-cost strategy to keep money, even large sums, out of probate by designating a beneficiary via the financial institution’s POD paperwork process for all types of bank accounts. A TOD transfer applies to stocks, bonds, and brokerage accounts in the same way. These accounts are not accessible to the beneficiary while you are alive. You can designate beneficiaries on various accounts types, such as:
- Checking or savings accounts
- Certificates of deposit (CDs)
- Individual Retirement Accounts (IRAs) and 401(k)s
- Inheritable pension and veteran benefits
- Investment accounts
As the testamentary deposit account owner, you can withdraw money, close the account, or name a different beneficiary at any time. There may be a short waiting period after the designator’s death before the bank or credit union releases funds, but probate is not a requirement.
Depending on where you live, a POD account can also be a:
- Totten Trust
- Tentative trust
- Informal trust
- Revocable bank account trust
- ITF, short for “in trust for”
In most cases, you cannot name an alternate beneficiary, so staying current with the paperwork designating your choice is important. No matter what information is in your will, it can’t override a properly established beneficiary designation.
Joint tenants or joint tenants by the entirety designate real estate
This property designation type has two owners. When one owner dies, the surviving owner automatically owns the property. This ownership is commonly referred to as the right of survivorship and also applies to community property in community property states.
Streamlining the Probate Process
Many states have simplified probate procedures for smaller estates, meaning they are under a certain dollar valuation. Depending on your state’s rules, even if your estate exceeds the definition of a small estate, there may be an avenue to exclude large chunks of assets to lower its size and value.
Many states don’t consider the value of certain properties when evaluating an estate. These property types may include real estate, real estate located in another state, and even motor vehicles. Additionally, many states won’t count the value of a property that doesn’t pass through probate. In essence, probate avoidance can pay double dividends after your death.
When trying to minimize an estate’s value to streamline probate, some states permit you to subtract any amounts owed on a property you don’t fully own. This can make a huge difference. Knowing your state’s definition of a small estate is crucial when creating probate-avoidance strategies. Staying under a certain threshold can simplify probate.
A sound estate plan can circumvent many issues that arise from probate, which may cause a lengthy process and reduce your estate’s value and legacy. Avoid the additional costs of probate, both monetarily and to your family’s well-being.