When you pass away, what will happen to your estate? If you have a trust in place, you can probably answer that question with relative confidence. If you don’t have a trust in place, the answer is likely probate. Probate is a court-supervised process for sorting out a person’s debts and distributing their assets after they die. Probate can be expensive, time-consuming, and stressful for your loved ones.
In this article, we’re doing a deep dive on all things probate. Plus, we’re outlining these seven ways to avoid probate so you can make a difficult process a bit easier on your family:
- Write a Revocable Living Trust
- Name Beneficiaries on Your Retirement and Bank Accounts
- Hold Property Jointly with Right of Survivorship
- Pay-on-Death Accounts and Registrations
- Gifts
- Simplified Procedures for Small Estates
- Getting Help from a Wealth Advisor And/or a Probate Attorney
Is probate the same in every state?
Probate is a court-supervised process, so it’s going to vary somewhat from state to state. That said, the general probate process is similar in most states.
In order to start the probate process, you’ll need to file a petition with the probate court in the county where the deceased person lived. The petition will need to include:
- The death certificate
- The original will (if there is one)
- A list of the deceased individual’s assets and debts
- The names and addresses of the deceased person’s heirs
Once the petition is filed, the court appoints an executor (or personal representative) to oversee the estate. If there is a will, the executor will be named in the will. If there is no will, the court will appoint someone to act as executor.
The executor’s job is to:
- Gather and inventory the deceased person’s assets
- Pay the deceased person’s debts and taxes
- Distribute the remaining assets to the heirs
Why should you avoid probate?
The probate process can take months (or even years) to finalize. Plus, it can be expensive. The executor is entitled to be paid for their time, and the estate will also have to pay probate court fees and other expenses. Plus, if the estate owes any taxes, those will need to be paid as well.
In addition to the time and expense, the probate process can also be stressful for your loved ones. They will need to deal with paperwork, court appearances, and potentially contentious family dynamics. That’s not something that we want to leave our families, so a small bit of preparation can be among the most impactful gifts you can offer.
How to Avoid Probate
There are a few ways to avoid probate. The best way to avoid probate is to work with an estate planning attorney and financial professional to create a comprehensive estate plan. Short of that, though, there are also some specific things you can do to keep your assets out of probate.
1. Write a Revocable Living Trust
A revocable living trust is a legal document that can hold assets on your behalf. You can act as the trustee of your own trust, which means that you retain control of the assets during your lifetime. And, because the trust is revocable, you can revise it any time.
When you create a revocable living trust, you’ll need to “fund” the trust by transferring ownership of your assets into the trust. Once the assets are in the trust, they will no longer be considered part of your estate. That means that they will not go through probate when you die.
2. Name Beneficiaries on Your Retirement and Bank Accounts
Most retirement accounts, like 401(k)s and IRAs, allow you to name a beneficiary. When you die, the account will pass directly to the beneficiary without going through probate. The same is true for many bank accounts. You can typically fill out a form at your bank to name a beneficiary for your account.
3. Hold Property Jointly with Right of Survivorship
If you own property (like a house or a car) jointly with someone else, it will typically pass to the surviving owner when you die. That means that the property will not go through probate.
There are different types of joint ownership, but the most common type is joint tenancy with the right of survivorship. For this to work, you’ll need to make sure that the ownership is properly documented. The title or deed to the property should list both owners and should include the language “joint tenants with right of survivorship.”
Joint Tenancy with Right of Survivorship
With joint tenancy, each person owns an undivided interest in the property. It also means that each person is equally responsible for paying the mortgage, taxes, and other expenses associated with the property.
The key benefit of joint tenancy is the right of survivorship. That means that when one owner dies, the other owner automatically becomes the sole owner of the property. The property doesn’t go through probate and it does not become part of the deceased owner’s estate.
Tenancy by the Entirety
This is a type of joint ownership that is only available to married couples. It has the same features as joint tenancy, but it also has some additional protections.
For example, in most states, creditors of one spouse cannot go after property owned by tenancy by the entirety. So, if one spouse has credit cards or other debts, the creditors cannot go after the property owned by tenancy by the entirety.
Community Property with Right of Survivorship
This form of joint ownership is only available to married couples in community property states. It has the same features as joint tenancy, but it also has some additional rules.
For example, in community property states, all property owned by married couples is presumed to be jointly owned. So, if you live in a community property state and you buy a house with your spouse, it will be presumed to be owned by both of you as community property.
4. Pay-on-Death Accounts and Registrations
Many financial institutions offer pay-on-death (POD) accounts and registrations. With a POD account or registration, you can name a beneficiary to receive the account or asset when you die.
POD accounts are typically bank accounts, but they can also be investment accounts, insurance policies, or even safety deposit boxes.
5. Gifts
You can avoid probate by giving gifts during your lifetime. For example, if you have a piece of property that you want to give to your child, you can simply transfer ownership of the property to your child. The gift will not go through probate and it will not be considered part of your estate.
There are some restrictions on gifts. For example, you can only give a certain amount of money each year without triggering gift taxes.
6. Simplified Procedures for Small Estates
In many states, there are simplified procedures for handling small estates. A small estate is typically an estate that does not exceed a certain dollar amount. For example, in California, the limit is $184,500. That means that if the value of your estate is less than $184,500, your heirs can use the simplified probate procedures.
7. Getting Help from a Wealth Advisor And/or an Estate Planning Attorney
If you’re concerned about probate, you’ve got two allies to turn to: wealth advisors and estate planning attorneys.
A probate attorney can help you understand the process and can offer guidance on how to avoid probate. To complement that, your wealth advisor can help you create an estate plan that aims to minimize the involvement of probate in the settling of your estate.If you’re concerned about probate, please contact us at Dechtman Wealth Management. We’re here to help.
