We hear so much about the importance of estate planning and avoiding probate, but very little about the details of why and how. Why is estate planning important? What is probate, anyway? What’s so bad about probate, and how can estate planning help avoid probate?

What is probate?

Probate is simply the legal process of dispersing your assets to your heirs after you have passed away. During this process, the court accounts for your assets and debts, pays any debts that you owe from your estate, and then distributes the remaining assets to your heirs.

Probate takes time

Because probate is through the court system, it is a relatively slow process. If you have not decided ahead of time how the division of your assets should occur, the court will decide for you. This process can take anywhere from 6 months to several years, depending on the complexity of your estate and if it is being contested by anyone.

Probate can be expensive

Whenever your estate goes through probate, there are costs involved. Probate fees can cost up to 7 percent of your estate’s value. The fees go toward probate court filings, administration fees, property appraisals, tax preparation, and attorney’s fees. So, if you have assets of $500,000 at the time of death, your estate could be charged up to $35,000—which is money that could have gone to your heirs instead.

Probate is a public process

Because probate is through the court system, it is a public process. That means that everything that is filed will be public record for anyone to access. All assets and debts will be made public, as well as the distribution of those assets. Believe it or not, this can make your heirs a target for thieves or scammers who use those records to choose their victims.

Now that you understand what probate is and how it works, you probably are thinking that you’d like to not have your estate go through that process. So, let’s talk about how you can plan ahead and make sure that your estate goes to the heirs that you choose, in a timely manner, and without a big chunk going to the court and attorneys to make your decisions for you…

How do I avoid probate?

A living trust—a living trust can help you avoid probate because some or all of your assets are in the trust. This still gives you control over your assets, you can make changes, or even revoke the trust at any time. A living trust is very similar to a will, in that it details out what you want done with your estate. However, a will, in and of itself, will not avoid probate because the assets have not yet been distributed. Utilizing a living trust, you distribute your assets to your trust, so upon your death, those assets can avoid probate altogether.
Designate beneficiaries—making sure that you designate beneficiaries on retirement accounts, insurance policies, bank accounts, and investment accounts can allow assets to be disbursed at the time of death without having to pass through probate. Even if you didn’t assign a beneficiary at the time that you opened the account, you have the ability at any time to go back and make those designations, or even change those designations throughout life.
Joint Property—if you have joint property, you can set it up to go directly to the other person upon your death. One of the biggest purchases you will probably ever make is your home and this is a good example of when you might want to set up Joint Tenancy with Rights of Survivorshipwith your spouse. Setting the ownership up in this way basically says that each owner of the property is 100 percent owner, so if something happens to either of the property owners, the other will still be 100 percent owner.
Gift assets to your heirs—one sure way to avoid probate is to not have the assets in your name at the time of death. If you have a very large estate, or just want to start depleting you estate before you pass, gifting assets to your children, grandchildren, or charities of your choice allows you to put those assets exactly where you want while you are still living. Current tax lawsallow you to an annual exclusion on gifts up to $14,000 per gift. So if you have three children and would like to gift each of them up to $14,000 this year, totalling $42,000, you can do so and take advantage of the tax exclusion.

By planning ahead, you can make sure that your assets are distributed according to your wishes, as well as spare your family any prolonged anxiety in the event of your passing.

Catherine Gareri, a Senior Associate with Finivi, works primarily with women going through a period of transition in their lives, or who are facing a new life challenge that may require difficult financial and emotional decisions to be made or at least considered, including caring for a loved one. If you need guidance navigating through a difficult life transition, or simply want help with your own estate conservation plans, we can help. You can call (800)530-6635 for a complimentary consultation or click here to schedule online.

Finivi Inc. does not provide tax and legal advice. Please consult your tax advisor or attorney for such guidance.