Going through probate after a loved one’s death can be a stressful, lengthy, and expensive process. Fortunately, there are many simple ways to avoid probate as long as you plan in advance. This is an excellent option for many families because it allows you to cut back on or eliminate court fees, executor fees, and lawyer fees. It also ensures an individual’s assets are directly transferred to successors upon death, avoiding the drawn-out and oftentimes complicated process of probate. Let’s take a look at the easiest, most-effective ways to avoid probate.
What is a probate?
Probate is the act or process of proving a will. Once someone passes away, their last will and testament is analyzed to ensure it is legitimate and the right assets go to the right people. The probate process includes paying off debt if the person had any, as well as distributing the remaining estate to the beneficiaries listed on the will. The probate process can be drawn out over time if things are contested or there are complications, and it can be very costly from lawyer and court fees.
The Best Way To Avoid Probate
Because of how costly and time-consuming probate can be, many people have the desire to avoid it entirely. If you are in the midst of estate planning, there are a few avenues you can consider taking if you’d like to avoid probate, including writing a revocable living trust, having joint tenancy with a right of survivorship, designating beneficiaries, and gifting your assets to someone else.
Let’s dig into each option of these a bit more.
A revocable living trust is a legally-binding document that accounts for someone’s assets after they die. A successor is listed on the trust to gives another individual power to take over the assets as soon as the original trustee has passed away or becomes incapacitated. In most cases, writing a living trust is the easiest way to avoid probate and ensure your estate is handled exactly how you want after death. While a living will is similar to a trust, a will still requires you to go to probate court and can take much longer to flesh out than a trust.
So, why is a living trust one of the best ways to avoid probate?
For one, writing a trust to distribute your assets is a great way to avoid future issues. Many individuals are concerned about the potential for conflict after a death – who gets which assets, who is deserving of what, etc. With probate, it is a long, drawn-out process that involves many people listed as beneficiaries on a will. There is signing off of lots of paperwork and the opportunity for a will to be contested after probate. However, with a trust, not everyone in the family needs to be involved because everything is detailed in the document and the successor is in charge of everything.
Trusts can also make things more simple than appointing a power of attorney. Many people believe that if they have a power of attorney in place, they are all set for after death, but that is not always the case. This is because a power of attorney does not always work. Powers of attorney are only able to make decisions on your behalf if the third-party financial institution honors them, but sometimes they won’t if the feel the power of attorney is dated or not accurate. However, a trust is a much better option than a power of attorney for avoiding probate because the successor trustee can step right in and make decisions without having to go through third parties.
Another reason trusts make estate planning easier is because it can cover multiple properties. For example, if an individual owns real estate in multiple states and does not have a trust in place at the time of their death or incapacitation, it can become very complicated. In most cases, family would have to go through probates in every state that the individual owned property, as well as work with more than one lawyer. The costs incurred would be extremely expensive. But, if you put the properties in a trust, probate is avoided all the way around.
Joint Tenancy with a Right of Survivorship
Another way to ensure you don’t have to deal with probate court is to opt for joint tenancy with a right of survivorship. Essentially, this means that you jointly share an asset with another person, so if one of you passes away first, the asset is transferred to the survivor in its entirety, no probate necessary.
A similar concept to joint tenancy is called tenancy by the entirety. Tenancy by the entirety is when a married couple shares an estate with each spouse having equal rights to the assets in the estate. Like joint tenancy, Tenancy by the entirety transfers complete ownership over the estate to the surviving shareholder after the first one passes away.
Some states also have laws regarding community property, which essentially means everything you and your spouse own is shared between the two of you. Couples can choose to have a prenup to avoid the community property law; however, if you do not have a written agreement to divide assets, then the surviving spouse will be granted ownership of all earnings and belongings if the other spouse passes without having to deal with probate.
In many ways, people actively avoid probate when they plan for their financial future. How so? In many financial situations, like opening an IRA or401(k), you can name a beneficiary, the person who your assets will go to upon your death, which will help avoid probate in the long run.
You can also name a beneficiary when you open a bank account, so if you pass away or become incapacitated, the assets in your account will be transferred to the named person. This process is called “payable on death.”
A similar concept can be applied for other investments outside of retirement savings, like real estate. You can use a “transfer on death” account or deed to ensure a beneficiary is automatically granted ownership without having to go through probate.
Gift Your Assets To Someone
This may be the least common way to avoid probate, but it does the trick if you prepare carefully. If you no longer own an asset at the time of your death, it can’t go through probate. Some people choose to give portions of their estate away prior to death in order to simplify the estate distribution process. Gifting someone property and other high-value assets can incur a high tax penalty, so keep this in mind if you are considering giving away your estate in full or in part.
Why is it good to avoid probate?
There are many benefits to dodging the probate process. It makes it very easy for the successor if you have a trust because they won’t have to deal with lawyers, court, etc. For instance, there is a gentleman who owns a business. The business solely relies on his involvement in the day-to-day operations, so if something were to happen to him, the business would lose value immediately. When estate planning, he decided to include his business in a trust because he wanted the successor to be able to sell the business right away and not have to worry about the delay of probate.
How Do I Avoid Probate Without a Trust?
In addition to the aforementioned methods of avoiding probate, the Small Succession Affidavit Procedure or Small Estate Affidavit is a law that may act in your favor if you have a smaller estate. This can vary by state, but generally, a Small Succession Affidavit Procedure will allow you to avoid probate as long as your total assets are worth or less than a certain amount and you have a will. In some states, the cap for this procedure is around $125,000.
What Assets Can Avoid Probate?
You only have to go through the probate process if you have probate assets like real estate and car titles. If you don’t own any real estate or vehicles in your name, you generally don’t have to worry about this. To learn more about estate planning, here’s a look at How to Transfer the Car Title of a Deceased Person.