When someone dies, their estate goes through a legal process called probate. This article will explain what happens during probate, and six ways to avoid it. First, we’ll define some key terms. Then we’ll go over what happens during probate, and why it’s important to avoid it. Finally, we’ll give you six tips on how to avoid probate.
What Involves Avoidance of Probate?
The legal process of probate can be time-consuming and expensive. It can also be a public process, which means that the details of your loved one’s estate will become a matter of public record. If you want to keep your family’s financial affairs private, or if you want to avoid the hassle and expense of probate, there are known Probate avoidance strategies you can do. Probate is the legal process of distributing a person’s assets after they die. The first step is to file a petition with the court. The next step is to appoint an executor, who will be responsible for managing the estate. Once the executor is appointed, they will gather all of the deceased person’s assets and pay any debts and taxes that are owed. Finally, the executor will distribute the remaining assets to the beneficiaries named in the will.
Why Is It Important To Avoid Probate?
There are several reasons why you might want to avoid probate. First, it can be a time-consuming and expensive process. Second, it is a public process, which means that the details of your loved one’s estate will become a matter of public record. Third, the executor may not be able to distribute the assets immediately, which can cause financial hardship for the beneficiaries. Fourth, if there are multiple beneficiaries, they may not all agree on how the assets should be distributed, which can lead to conflict. Fifth, probate can be complicated and confusing, and you may need to hire a lawyer to help you navigate the process.
1. Giving Assets Away During Your Lifetime
This is often done through gifts, but can also be done through trusts. This is the simplest way to avoid probate, but it has to be done before you die. When you opt for this strategy, you need to have a good understanding of the gift tax rules. For example, you can give up to $14,000 per year to an unlimited number of people without triggering the gift tax.
2. Creating A Living Trust
A living trust is a legal arrangement in which you transfer ownership of your assets to a trustee. The trustee is then responsible for managing the assets for the benefit of the trust’s beneficiaries. Because the assets are owned by the trust, they are not subject to probate. This can be a good way to avoid probate if you are concerned about the cost or the time it takes to complete the process. Also, if you have a large estate, a living trust can help to avoid estate taxes.
3. Transferring Ownership Of Assets At Death
You can transfer ownership of some types of assets, such as property before you die. This can be done through a deed or other legal document. If the asset is transferred properly, it will not be subject to probate. For example, if you own a home jointly with your spouse, you can add your spouse’s name to the deed. This will ensure that the home passes to your spouse without probate. You can also set up a revocable living trust and transfer ownership of your assets to the trust. When you die, the assets in the trust will not be subject to probate.
4. Changing The Beneficiary Of Assets
For many assets, you can name a beneficiary who will receive the asset when you die. The beneficiary can be a person or an entity such as a charity. When you name a beneficiary, the asset is transferred outside of probate. Some examples of assets that can have a beneficiary include:
- Life insurance policies: These are contracts in which you pay premiums to an insurer. In exchange, the insurer agrees to pay a death benefit to the beneficiary you named in the policy.
- Retirement accounts: These are accounts that are used to save for retirement. They include 401(k)s, IRAs, and pensions. You can name a beneficiary for these types of accounts. When you die, the account assets will be distributed to the beneficiary.
- Bank accounts: You can set up a payable-on-death (POD) designation for your checking and savings accounts. This allows you to name a beneficiary who will receive the account assets when you die.
5. Creating A Joint Ownership Arrangement
You can hold assets jointly with someone else, such as a spouse or child. When one joint owner dies, the survivor usually becomes the sole owner of the asset, and it does not have to go through probate. This arrangement can be used for assets such as bank accounts, investment accounts, and real estate. Additionally, you can add a right of survivorship to some types of property, such as a car. This allows the surviving owner to take ownership of the property without probate.
6. Paying Someone To Take Ownership Of Assets
You can pay someone to take ownership of your assets while you are alive. This person is known as a transferee. When you die, the assets will belong to the transferee and will not be subject to probate. You should be careful when using this strategy because it can have tax implications. Also, if you use this strategy, you need to make sure that the transferee does not misuse the assets. For example, if you transfer ownership of your home to your child, you need to trust that your child will not sell the home and keep the proceeds for themselves.
There are several ways to avoid probate. You can create a living trust, transfer ownership of assets at death, change the beneficiary of assets, create a joint ownership arrangement, or pay someone to take ownership of assets. Probate can be a costly and time-consuming process. By taking steps to avoid probate, you can save your loved ones both time and money.