There are very few certainties in life—death is one of them. As hard as it is to think about, we’re all going to die sooner or later. And since we can’t avoid what will eventually come to pass, we can make things easier for ourselves and our family by preparing ahead of time.
Contrary to popular belief, getting your estate in order and deciding who gets what isn’t something only the rich. Perhaps the word “estate” implies wealth because it sounds fancy. You don’t qualify for an estate plan if you own a house, a bank account, and two children.
You’ve likely worked hard to save up for retirement, buy a house, or own a few prized possessions throughout your lifetime. Ideally, you’d want to leave your estate to your heirs or loved ones of your choosing. However, with no legal document to showcase your wishes in case of your untimely death, you can no longer control how your estate gets distributed. In this scenario, a probate court will determine, based on state law, how to divide each of your assets among your heirs.
What is Probate?
Most legal representatives will tell you to avoid the probate process. But it’s better if you have some basic knowledge on the matter. Let’s address the main question: what is probate?
Probate refers to a legal proceeding where the court directs and administers the transfer of a deceased’s assets. When there is a will, the probate involves first proving that the document is legally valid before distributing possessions as ordained by it. In your will, you must also name an Executor who files an inventory of your estate, pays off pending debts, and distributes the property. However, it will be up to the court to determine how your assets get divided when there is no will. Instead, the court will name an administrator for your estate responsible for distributing possessions as per the judge’s instructions.
Probate laws can vary across states, so you must familiarize yourself with ones pertinent to your hometown to efficiently administer your final wishes. Typically, the hierarchy for estate distribution begins with your spouse. But in cases where the deceased is unmarried, the assets pass on to other family members, such as the surviving children, followed by your closest relatives.
Reasons To Avoid Probate
Although reasons to avoid the probate court may vary in differing circumstances, some common problems include:
- The process can be slow
The entire probate process is a legal proceeding that involves various hearings and court sessions at its core. Paying off debts and gathering all the assets can take months or even years and take even longer if the will gets contested.
- It can be expensive
Typically a probate process entails executor costs, attorney fees, or other administrative charges. These expenses can accumulate quickly, especially when the process drags on for a while.
- It is a public process
Avoiding probate is best if you prefer to keep your financial affairs private. The entire proceeding is public which means all processes and documents become part of the public record. Anyone outside the family can get information regarding your assets, including their value and who will receive them.
Ways To Avoid Probate
You may now understand why avoiding probate is best for distributing your assets for the reasons stated above. There are many ways to accomplish this, some of which we have outlined below:
1. Establish A Living Trust
A living trust is sometimes also referred to as a revocable trust. It allows you to transfer your possessions to surviving family members or other designated beneficiaries of your choice. This trust can also include real estate properties that get dispersed as per your wishes upon your death. As a grantor, you must first set up a trust to retain your assets while you’re still alive. Next, you must name specific beneficiaries for each item and the portion you wish to allot to them after your death. Lastly, you must designate a trustee responsible for managing the trust and ensuring the estate gets distributed per your wishes. Since a living trust is revocable, you can modify, dissolve, or revoke it during your life.
Assets that are part of trust don’t count as part of your estate upon death. Therefore, all possessions get distributed as agreed by the terms of the trust.
2. Name Beneficiaries On Your Bank Accounts
Most people don’t realize that when they open a bank account, they have the option to name a beneficiary that is payable upon their death. This means that you can designate one or more persons to take over your account after you’re gone without involving the court or any legal proceedings. Besides bank accounts, other payable on death accounts include 401k plans, life insurance policies, IRA accounts, or even stocks and bonds. Your brokerage company can provide you with relevant application forms that allow you to designate beneficiaries, granting them immediate access to your accounts when you die. This process saves time and unnecessary expense by avoiding probate altogether.
3. Give Away Assets During Your Lifetime
A probate court only distributes possessions you own or under your name. The court cannot redistribute anything placed in a trust or gifted to someone. Another helpful strategy is to give away your valuables while you’re still alive. If you transfer the deed of your house to your daughter, you won’t have to go through probate.
Giving away part of your estate during your lifetime can significantly reduce the portion of your estate that goes through probate court. This strategy can even help eliminate or partially reduce state or federal estate taxes.
4. Hold Property Jointly
Holding a joint property with your spouse or a significant other can also help you keep your real estate out of probate. Regardless of whether you’re married or not, a jointly-held property will automatically go to the surviving member of the couple.
Each individual’s case varies. An estate plan that may work for you might not be efficient for a relative or coworker. It is best to consult a legal expert who can help you choose the right strategy to avoid probate. This way, you can ensure your assets stay within the ownership of your choice.