What’s the golden rule for avoiding probate? Create a plan. While that recommendation sounds both simple and nondescript, the truth is that an overarching plan composed of different estate planning strategies is key in avoiding probate.
Before we dive into the basics of avoiding probate, let’s touch on what probate is and why people are so desperate to avoid it.
What is Probate?
Probate is the legal process of administering a decedent estate. This court-supervised process ensures that the deceased person’s will (if available) is valid, assets are appropriately distributed, and debts and taxes are settled according to state law.
Probate is not known for its simplicity. Though the duration and process of probate can range from county to county and courtroom to courtroom, probate is widely recommended to be avoided at all costs. This is because the proceedings can be tedious and taxing on the estate executor and beneficiaries, who inherit responsibilities like locating legal documents, marshaling assets, and settling debts and taxes. This process can take months or even years to finalize, as the estate racks up court and attorney’s fees among other expenses.
The estate is at the court’s mercy and is required to follow the state-specific legal proceedings with very little flexibility for specific wishes or requests. This can cause inevitable frustration for the parties involved, which oftentimes brush up conflict or dispute among family members.
Probate is also publically discoverable, which can end up causing angst to families who would prefer privacy. Those of us reading this blog are probably not famous like Prince or Chadwick Boseman, but we still might want to keep information about our estate private.
4 Ways to Avoid Probate
Now that we have a handle on the hassles of probate, let’s touch on specific strategies of avoiding probate. Here are 4 steps you can take to ensure your wishes are carried out without requiring court intervention.
- Create a Revocable Trust: A revocable trust, sometimes referred to as a living trust, allows you to control assets while still living. You as the grantor control the trust and have the authority to make any necessary decisions or changes as you see fit, including adding or removing beneficiaries.
Revocable trusts become irrevocable upon the grantor’s death, which allow it to bypass probate entirely.
- Establish Joint With Rights of Survivorship: During the probate process, accounts may be inaccessible to the executor and/or beneficiaries. One way to ensure payments, like real estate mortgages, fees, and other trust-related bills, can be made is by titling accounts with “joint with rights of survivorship”.
When titling an account with the joint with rights of survivorship designation, it creates a joint ownership arrangement. Upon death, the account is automatically transferred to the surviving joint owner, circumventing probate.
- Payable-on-Death (POD) Designation: Another important designation in avoiding probate is payable-on-death (POD). A POD designation allows you to add a beneficiary to an account, like a brokerage account, savings account, certificate of deposit, or retirement account. Upon the account owner’s death, the funds are paid or transferred directly to the beneficiary, thus avoiding probate.
- Consider Gifting: Some states may allow you to bypass probate if your estate meets an exemption level. One way to shrink the size of your estate is by gifting assets to family members or friends prior to passing. Gifts can include money, real estate, family heirlooms or other personal property.
This can inevitably shrink the value of your estate and may also reduce state or federal tax, as well. Be mindful, though, of gifting tax and the annual exclusion limit.
Additional Considerations
Beneficiaries
Many of the recommendations made to avoid probate include the need for a beneficiary. Before you kick off your “avoiding probate” estate plan, take stock of who you’ll name as beneficiary(s). There are certainly pitfalls you’ll want to avoid, like leaving out key personal information or designating an irresponsible beneficiary. Also, remember to review your beneficiary assignments regularly or with any life change.
Probate by State
Familiarize yourself with your state’s probate guidelines, which are typically available online for easy access. There you can identify how to file for probate of an estate, important deadlines and notices, and record access. These state-specific guidelines will help you or your loved one shape the estate plan and factor in any additional considerations.
Lean on the Experts
The estate planning process can not and should not be done alone. Consult with an estate planning attorney to determine the best approach based on your specific circumstances and state laws. A qualified financial advisor can also play a valuable role in various aspects of estate planning by providing a comprehensive financial analysis, asset management, and tax strategy for wealth preservation. Connect with Prudent Investors to ensure your financial and investment strategies align with your estate planning goals.
Investment advice through Prudent Investors Network, Inc., an SEC-registered investment advisor. This blog is general communication being provided for informational purposes only. This information is in no way a solicitation or offer to sell securities or investment advisory services. It is educational in nature and not to be taken as advice or a recommendation for any specific investment product or investment strategy. This does not contain sufficient information to support an investment decision. Any investment or investment strategy mentioned may not be suitable for all investors or in their best interest. Statistical information, quotes, charts, references to articles or any other quoted statement or statements regarding market or other financial information is obtained from sources which we believe reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. All rights are reserved. No part of this blog including text, graphics, et al, may be reproduced or copied in any format, electronic, print, et al, without written consent from Prudent Investors. Prudent Investors does not provide legal or tax advice. Please be advised to consult with your investment advisor, attorney or tax professional before making any investment decisions.
