Protecting Your Heirs: How to Avoid Probate
Anyone who has experienced probate court knows how annoying and tiring it can be. If you do not have an estate plan, then your descendants and beneficiaries will have to wait for the property to go through probate before it can be distributed. Even individuals who have created a will still have to go through probate, but there are options available to work around the government-imposed estate plan.
What You Should Know About the Probate Process
- You lose control: If you let your property go to probate, then a judge that you have never met will determine how your assets will be distributed among your family. While probate judges have experience doing this, it still does not mean that they will make the right choice. Someone may appear to be the right heir on paper, but they might not be the person you want to inherit your estate.
- It takes time: Moderate estates can take up to two years to process in probate. If the decision is contested, it can take even longer. Small, uncontested estates can take just 18 months to process, but that is only true if there are no disputes. In some cases, it can take 10 years or more to go through probate court if there are disputes. By the end of the process, your heirs will have spent much of their inheritance on legal fees.
- Probate costs money: Depending on the size of your estate, probate will cost a different amount. There are statutory fee schedules for executors and attorneys for different sizes of estates. Additionally, there are “extraordinary” legal costs if there is a dispute. All of these costs mean that your heirs will not get the entire portion of the estate.
- You lose privacy: In probate, your assets and family information can end up becoming public record. As disputes heat up, family arguments and secrets could be revealed.
Finding Alternatives to Probate
If you do not want to lose your privacy and part of the estate, there are alternatives that you can use instead of probate. From joint ownership to creating a revocable living trust, these options ensure that your heirs can skip the probate process.
Create a Revocable Living Trust
A living trust was originally created to help people skip the probate process. By having a revocable living trust, your property is placed in the trust and is not counted as a part of your probate estate. It still must pay federal estate taxes, but the estate will quickly transfer to whoever you choose to inherit it. The trustee technically owns the trust property, so it does not go into probate. You must create a trust document and select the heirs that you want to inherit the trust.
Joint Ownership of Property
The next option for avoiding probate is to create joint ownership of the estate. If someone else is on the title, then the property will automatically go to the other owner if you die. You can place someone else on the title and determine how you want the title to be held. Once this is done, you normally will not need any other documents for the property to transfer automatically.
For retirement and bank accounts, there is a different option for avoiding probate. A payable-on-death account requires one basic form. On the form, you just have to list the beneficiary that you want to inherit the account upon your death. When you die, the money will automatically transfer to the beneficiary. This technique can also be done in most states for vehicle registrations and security registrations. In select states, you can even set up transfer-on-death real estate deeds.
Make a Living Trust
In most ways, a living trust is like a last will. It distributes your assets upon death. Unlike a will, it skips the probate process because your assets are technically placed in trust. A trustee manages the estate and assets for your beneficiaries. With a living trust, you can avoid the cost of probating a will and the resulting court costs.
Joint Tenancy With a Right of Survivorship
Another alternative to keeping your real estate out of probate is to own the property jointly. You can place your significant other on the title of the property so that it automatically skips probate. This does not require you to be married because anyone's name can be added to the title. As long as the property is designated as jointly held property, the estate will pass to the surviving. To make sure that this plan works, consult with a lawyer to make sure that you have designated the ownership clearly. Depending on your state, you may also want to consider tenancy by the entirety. If your state allows it, tenancy by the entirety allows married couples to skip probate. In community property states, you may also be able to designate the property as a community property with a right of survivorship.
Community Property With a Right of Survivorship
In Wisconsin, Alaska, California, Nevada, Arizona, Idaho and Teas, you can co-own your property with your spouse. When your property is considered a community property with a right of survivorship, the asset automatically transfers to the other spouse when one spouse dies.
As a last option, you can always give away property while you are alive. If you are alive, the property or assets do not have to go through probate at all. Many gifts are not subject to the federal gift tax, so this option can be much cheaper than the taxes and court costs of probate.
Remember: A Will Is Not Always Enough
People have common misconceptions about wills. One of the most common misconceptions is that a will will avoid probate. This government system will automatically kick in unless you take steps in advance. An attorney can help you create an estate plan that works around probate so that your heirs do not have to deal with the time, costs and stress of probate.