Probate court is often slow and costly, and will always cause unnecessary hardship to grieving loved ones. However, with proactive estate planning you can avoid it. Here are six tips to help your loved ones avoid the cost and hassle of probate court when the time comes.
What Is Probate?
Probate is a legal process by which a deceased person’s assets are distributed, final wishes are carried out, and debts are settled. It is a court-supervised process in which the court validates the will, appoints an executor and distributes assets. This process can take time and can be expensive. There are many reasons why avoiding probate court is advisable; here are the three most common.
- Cost. The probate process has costs associated with it. There are several fees, including attorney, court, valuation, executor, appraisal, and other miscellaneous costs. In addition, a personal representative may receive compensation for distributing the assets, which means fewer assets for heirs. Fees will reduce the amount distributed to heirs.
- Time. Each case is different, but the probate process can generally take months to years for heirs to receive distributions. These delays can add stress and hardship on heirs who may have been expecting distributions from the estate.
- Claims. The probate process is public, and others may claim a right to the assets. This could lead to disputes and meritless claims.
Minimizing probate will require some planning, but being proactive now will make the process smoother for your heirs. The following are six ways to avoid probate court:
1. Create a Revocable Living Trust
If you want to avoid the probate process, putting your assets in a trust means they are not part of your estate. A trustee controls the distribution of assets and is obligated to make distributions under the terms of the trust agreement. You specify how you want your trust assets distributed similarly to a will. These assets will be transferred at the time of your death. In addition, the process is private rather than public, unlike the probate process.
2. Name Beneficiaries for Accounts
Some accounts aren’t required to go through the probate process and will pass directly to beneficiaries. You can list beneficiaries for pension plans, life insurance policies, 401(k) plans 403(b) plans, accounts at a bank and through a securities brokerage, IRA accounts, and other investments. Check with a CPA or financial planner for potential tax consequences for heirs.
3. Own Property Jointly
Making your spouse or another individual a joint owner of the real property allows the asset to transfer without needing the probate process. There are several ways to set this up, including joint tenancy with the right of survivorship, tenancy by the entirety, and community property with the right of survivorship. An estate planning attorney or financial planner can assist with the process.
4. Make Accounts Payable on Death
You can designate your bank account as payable on death. These accounts will pass to your beneficiaries without the probate process. You can arrange this through your financial institution, and the account assets will go directly to your beneficiary.
5. Give Away Property While You’re Alive
If you own property and want to minimize probate, consider giving away property to your loved ones while alive. You can also give away cash gifts as long as they don’t exceed federal guideline amounts you can give.
6. Transfer on Death Provision for Securities and Vehicles
For securities accounts, you can sign a form indicating that the transfer should be made to your beneficiary upon death. The beneficiary can take possession of the asset only upon your death. There is no requirement for probate. The same rule applies to vehicles if the beneficiary presents identification and a death certificate.
This article is intended for general informational and educational purposes only, and should not be construed as financial or tax advice. For more information about whether a reverse mortgage may be right for you, you should consult an independent financial advisor. For tax advice, please consult a tax professional. Forinformation on a reverse mortgage please contact me!