Probate is the process of validating the legitimacy of a will, distributing assets according to that will or intestate laws if no will is present, and paying any claims of the deceased’s creditors. This process is known to be fairly expensive, including costs such as hiring attorneys, appraisers, accountants, auctioneers, etc. The probate process can also be very lengthy, in extreme circumstances lasting a couple of years. The process is also open to public inspection.
For these reasons, many people try to avoid the probate process all together. Here are three easy tips to avoid your assets passing through probate:
- JTWROS: Add a “joint owner with right of survivorship” to a bank account or other property. For married couples, using the distinction of “tenancy by the entirety” is another alternative. Be cautious of any taxable gifts this strategy may create, either immediately or in the future. Also be aware that there are other joint titles that may be used to hold property but do not avoid probate. (e.g tenancy in common and community property).
- Beneficiaries: Add beneficiaries to accounts that will allow them. Examples of accounts that allow beneficiary designations are life insurance, retirement accounts: both employer-sponsored and individual, pay on death or transfer on death accounts, and annuities. These accounts pass directly to the beneficiary upon death of the owner – regardless of what your will stipulates (beneficiaries trump your will). The only exception is if you name your will as the beneficiary, which would then cause the account to pass through probate.
- Trusts: Create a revocable or irrevocable living trust and name it as the owner of your remaining assets. This causes the assets to distribute according to the trust document instructions rather than your will. The major difference between a revocable and irrevocable trust is that the irrevocable trust cannot be changed by you once you establish it. With a revocable trust you have the ability to make changes after it has initially been established.
You should consult an estate planning attorney to ensure your wishes will be met, especially if you have a complex estate. Want to learn more about protecting your assets or those of a loved-one? Contact us today for more information.
Financial Planning Associate