When you pass away, your family could have to visit a probate court to claim the inheritance you left behind. If you own property like a house, car, bank account, investment account or any other possessions you wish to pass on after your death, your inheritors could be in store for a long probate court process.
Although having a will is a good form of planning, a will does not avoid probate. Instead, a will simply lets you inform the probate court of your wishes. Your family will still have to endure the probate court process to make your final wishes legal. In simpler terms, probate is the legal process for distributing your property upon your death.
What is probate?
Explaining the probate process sounds simple, but probate itself is anything but a walk in the park. While probate isn’t always complex, it is important to understand the process, particularly if you want your heirs to avoid probate after your passing.
Your estate executor, or the attorney representing your estate, typically initiates probate. During this process, a probate court validates your will and then authorizes your executor to distribute your estate to your beneficiaries as you instructed, as well as pay any taxes your estate may owe.
If you do not have a will, a further administrative proceeding must be held to determine how your estate will be divided. In this case, the court will name an administrator for your estate, who then follows the probate judge’s instructions on how to distribute your property.
Why should you avoid probate?
Although the probate court process is often straightforward, many people want to avoid it. Below is a list of some common complaints and hindrances regarding probate.
- Probate can be slow. In some cases, it can take years for a probate court to finalize an estate, especially if it’s complicated or involves a contested will. Whether you have a large or small estate, the probate court process will be slow and could drag on for months.
- Probate can be expensive. Costs vary from state to state, but probate generally entails executor fees, attorney costs and other administrative expenses, such as appraiser’s fees. In some cases, these charges can accumulate quickly. The expenses are exacerbated if the process drags on for a while.
- Probate is part of the public record. Since probate is a state legal proceeding, what goes on in probate court does not stay there. All the material in the probate process goes into the public record.
How can you avoid probate?
Maybe you’ve made it through to this portion of the blog and now you’re ready to find out how you can avoid probate. The first recommendation is to call a trusted attorney at Rhodes Law Firm to discuss your estate, options and wishes upon your passing. Below are three simple ways to avoid the probate process.
- Name beneficiaries on all of your accounts that allow you.
Many of your financial accounts allow you to designate a beneficiary who will be payable upon death. This means all the proceeds from your accounts will be given to them rather than going through probate after you pass.
Certain accounts are referred to as a “payable on death” accounts while non-retirement investments are known as “transfer on death” accounts and include:
- Bank accounts
- Brokerage accounts
- Life insurance policies
- 401k plans
- IRA accounts
You only need to complete a couple forms with the name of your beneficiary, and after your death they will have access to the accounts while avoiding probate court.
- Set up a trust to leave property and assets upon death to your beneficiaries.
An easy way to avoid probate when you have substantial assets is to create a trust. A trust outlines what will be done in terms of asset distribution without the courts being involved. While a will distributes your assets and property after your death, a trust allows you to place your assets and property “in trust” while you’re alive so they will not require distribution after your death.
You will personally appoint a trustee to manage your trust and they will make decisions for your beneficiaries. Besides avoiding probate, a trust makes a smart estate planning tool because:
- A trust is private.
Probate records are public court records, which means that anyone can look up how your assets and properties were distributed in a will following your death. None of this information will be publicly available when you create a trust because your beneficiaries will not need to go through the court system.
- Trusts can be less expensive.
Your estate will need to pay for the court fees associated with probate, which can cost anywhere from 2% to 10% of your total estate. The percentages tend to be higher for smaller estates, because many costs are fixed. You do have to hire a lawyer to set up a trust, which can run into the thousands of dollars. Then you must be sure to retitle your accounts into the name of the trust, or you will have paid the trust drafting fees for nothing, and you will still incur probate costs. To totally avoid probate, all assets need to be titled into the trust or to “transfer on death” accounts.
Probate is a process that may require a year or more. If you own homes in multiple states, your family must comply with each state’s specific probate laws, additional court dates and fee structures if you only create a will. Your beneficiaries may need to wait a substantial time to receive what you leave them, which could put them in financial strain.
Since a trust avoids probate, distributions take only a few weeks instead of several months or years. Setting up a trust is the best way to leave property upon death if you are leaving a large inheritance, but you’ll need the help of an estate planning attorney along with an experienced financial planner to get it right. You need to make sure there are assets available to pay any outstanding liabilities before the trust assets are disbursed.
- Hold your property jointly.
Owning a property with your spouse, significant other, or a beneficiary allows it to automatically pass to them without going through probate after your death. You do not have to be married to take advantage of this, but you do need to clearly designate the jointly held property with the right of survivorship.
Interested in estate planning with a trusted and experienced attorney? The law office of Rhodes Law Firm is here to help you plan for the future, and help you avoid the probate process. Make things simple for your beneficiaries upon your passing and allow Rhodes Law Firm to help you plan and avoid the probate process.