You may have heard about “avoiding probate,” but might not be sure what probate is or why you would want to avoid it. Probate is the court-supervised process of distributing a deceased person's money and property, a process which is sometimes necessary after someone passes away. This process gives someone—often the surviving spouse, a close family member, or trusted friend—the legal authority to gather the deceased person's assets, pay debts and taxes, and eventually transfer assets to the people who inherit them.
When a deceased person's estate is probated, the estate can be subject to a variety of costs stemming from attorneys, executors, appraisers, accountants, courts, and state law. Depending on the probate's complexity, fees can run into tens of thousands of dollars. Additionally, this process takes time, meaning that your beneficiaries may have to wait longer than you would like to receive their inheritance. It's also important to note that when an estate is probated, the proceedings become part of the public record, so families often choose to avoid probate because they want to preserve their privacy.
Here are three simple ways to reduce or eliminate costs, and preserve privacy, by avoiding probate:
1. Name a Beneficiary
The probate process only applies to those accounts or other property that are in your name at your death. By naming a beneficiary, these accounts and other property will be transferred to the named individual without any court involvement. Depending on your state, common beneficiary designation assets include:
- Life insurance
- Annuities
- Retirement plans
- Real estate
Caution: When someone is named as a beneficiary of an account or piece of property through the use of a beneficiary designation, he or she will receive that account or property outright, which could subject the account or property to claims asserted by the beneficiary's creditors.
2. Create and Fund a Revocable Living Trust (RLT)
Once the RLT has been created, and you have properly transferred the ownership of your accounts and property to the RLT by re-titling them into the name of the trust, you remain in charge of all legal decisions until your death as the trustee, and you retain the enjoyment of those accounts and property as the current beneficiary. After your death, your named successor trustee will manage and distribute your assets – according to your wishes. A trust works well if it is properly created and funded by an experienced estate planning attorney.
3. Own Property Jointly
Probate can also be avoided if the property you own is held jointly with a right of survivorship. Similar to a beneficiary designation, joint ownership has the effect of automatically transferring the ownership upon your death. There are several ways that you can establish joint ownership of property, such as:
- Joint tenancy with right of survivorship – ownership simply transfers to other tenants upon your death
- Tenancy by the entirety – a form of joint tenancy with a right of survivorship, but only for married couples in some states, including Tennessee
- Community property – property obtained during a marriage in some states
State laws play an important role here. We can help you determine which form of joint ownership, if any, is a good fit for you.
Caution: Just as with a beneficiary designation, adding a joint owner to your accounts or property can subject the accounts or property to claims asserted by the new joint owner's creditors. Moreover, this vulnerability begins the moment they are added. This means that your accounts or property could be seized by your new joint owner's creditors even while you are still alive.
We Have the Tools to Help You
Contact our office today to schedule your appointment. We are here to help you decide whether it makes sense to avoid probate in your particular case and, if so, the best way to do so.
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Read More:
What is Estate Planning? An Estate Planning Overview
Estate Planning Basics & Benefits
Wills Versus Trusts: How do I know What I Need?
