How To Avoid Probate

After your death, somebody needs to manage your affairs. For example, you may owe money to lenders, own property, or have assets that need to be distributed to heirs. In many cases, the process of handling those tasks happens in probate.

Probate is a court-supervised process of verifying your will and managing your assets and liabilities. This process begins by proving your will, and an executor or personal representative will eventually pay creditors and gift any remaining assets in your estate to your heirs.

While many people navigate the probate process without difficulty, probate does take some time, and it can be expensive. With careful planning, however, it may be possible to skip the challenges often associated with probate.

Why You Should Avoid Probate

Avoiding probate is a common goal, but the process isn’t necessarily cumbersome. Still, going through probate has potential drawbacks, and it’s important to know what you’re facing—and decide if you’d rather avoid probate.

Cost

The costs involved in probate can reduce the amount of money left for heirs. The probate process can include court fees, attorney fees, appraisal and valuation fees, and other costs. The personal representative might receive compensation for the time and effort required to complete the process, and your state may have additional fees. Ultimately, the cost of probate could amount to 2% to 5% of an estate’s value. That said, in some cases, the cost is lower, or can skyrocket with complicated situations.

Delays

Probate takes time, potentially adding stress or leaving heirs in financial hardship. In some cases, it can take months or years to complete the process. But other methods of transferring assets (like naming a beneficiary) can help others access funds more quickly.

Claims and Disputes

When you avoid probate, you reduce the chances of creditors or disgruntled family members making claims to the decedent’s assets. Because the probate process is slow and part of the public record, others may have an opportunity to interfere. But probate-avoidance strategies can help reduce problems.

4 Ways To Avoid Probate

It’s not terribly difficult to avoid probate, and you have several options for doing so. Probate-avoidance strategies typically focus on minimizing the size of your estate. If the value of your assets is below specific levels determined by your state, you might be allowed to use a simplified probate process.

The right approach will depend on the types of accounts you own, your relationships, and other factors, and it may make sense to use a combination of the following strategies.

Create a Revocable Living Trust

Assets held in trusts typically are not subject to probate. Instead, the trust document dictates what happens with assets after your death. For instance, the trust might say that your beneficiaries receive a lump sum, or the trust might disperse funds when beneficiaries meet certain milestones (such as age 25 or graduation from college).

If you use a revocable living trust, you can keep control of your assets during life. That way, you can spend money as needed or update the trust if your wishes change.

Name Beneficiaries for Your Accounts

You can arrange for some accounts to pass directly to a beneficiary after death. Instead of having the assets in your estate, the funds skip probate, minimizing the size of your probate estate. You can name beneficiaries for retirement accounts and life insurance policies, and doing so can potentially offer tax benefits for your heirs. Check with your CPA and other financial professionals to design a strategy that manages taxes and meets your estate planning goals.

Taxable accounts and bank accounts can have beneficiaries in some cases. With a Transfer on Death (TOD) or Payable on Death (POD) registration, your named beneficiary can take over an account relatively easily.

Own Property Jointly

When you own property as a joint tenant with rights of survivorship, those assets automatically go to the joint owner (or multiple owners) after your death. As a result, they will not be part of your probate estate, and your will does not govern how those assets are distributed. It’s common for couples to own property jointly, making it easy to manage household assets and ease the burden on survivors after death.

However, there are several types of joint property, and not all of them work like joint tenants with rights of survivorship. For instance, property owned as tenants in common might go to your estate, and things can get complicated in community-property states.

Give Away Property Before You Die

Your estate consists of property you own at death. If you give assets to others during life, you can reduce your probate estate, and it may be satisfying to watch others enjoy (or otherwise use) assets during your life. For example, you might give cash to children or donate assets to charity.

Remember that you don’t know how long you’ll live or how much money you’ll need for health care and other expenses. So make sure you can live comfortably before irrevocably giving up control of assets.

The Bottom Line

After a loved one dies, the probate process can add a time-consuming and stressful task to everything else that survivors have to deal with. Plus, probate costs money—sometimes a significant amount. With some planning, it may be possible to avoid or simplify probate.

Simple tasks such as naming beneficiaries go a long way, and more complicated tactics can also help. If you’re concerned about the impact of probate on your family members or your assets, speak with an estate planning attorney licensed in your state. That’s the best way to get a realistic estimate of the costs, and you might get some excellent ideas on how to manage your estate.

Frequently Asked Questions (FAQs)

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