Wondering how to avoid probate? We lay out steps you can take to keep your assets out of probate, and your family stress-free.
When a person passes away, their assets and property may have to go through probate. If that sounds like it’s probably a long and expensive process, you’re right.
So it’s no surprise that probate avoidance is a frequent topic. No one wants their grieving family to suffer more stress.
Thankfully, there are several ways to set up your estate plan to avoid probate, including establishing a trust, naming beneficiaries for your assets, and more.
This article explains the advantages of avoiding probate, and estate planning steps you can take to do so.
Probate is the legal process of distributing your assets to designated beneficiaries.
At a high level, the probate process begins when the executor submits the decedent's will to probate court for verification (assuming there is a will). The executor is typically named in the will and acts as a personal representative for the estate. And if the will does not name an executor, or there is no will, the probate judge will appoint an estate administrator to fulfill the role.
Once the probate judge has verified the will, the terms of the will can be executed. Any outstanding debts, taxes, or other costs left by the deceased are paid via the decedent's estate. Then, the estate's remaining assets are distributed to the beneficiaries named in the will.
The probate court process can be lengthy and expensive, lasting for several months or years. Probate costs include executor fees, filing fees, attorney fees (if a probate attorney is required), and other administrative expenses.
Given the length and costs involved, people often wonder about the best ways to avoid probate.
Not everything in your estate has to go through probate. As we discuss in this article, there are ways to avoid having a probate court run your assets through the probate process.
Generally, these are the three categories of assets that won’t have to be probated: (1) assets placed in a trust, (2) jointly owned assets that transfer to the surviving joint owner, and (3) assets that have a valid beneficiary designation (typically insurance policies, retirement plans, etc.).
The most common assets that go through the probate process are ones that are owned solely in the name of the deceased person. For example, real property (i.e. real estate) owned solely in the deceased’s name.
The probate process is well-defined by state laws, but many people seek to avoid it for several reasons:
So if you’re asking yourself why avoid probate, think about how the probate process may impact your family once you’re gone.
Differences in state probate laws can lead to variations in the overall process and cost of probate depending on what state you’re in. In some states, probate laws may set limitations on the cost of probate court and attorney’s fees.
State probate laws will also dictate when you can avoid probate entirely. If your estate is below a certain value, state probate laws may allow you to avoid probate altogether or to use a simplified version of the process.
States like New York, Florida, Pennsylvania, Ohio and North Carolina all have different requirements for when probate can be avoided or shortened.
Fortunately, there are ways to avoid probate. Here are some of the estate planning tools you can use to keep your assets and property out of probate:
Now let’s look at each of these a bit more in-depth.
A living trust is a legal document that outlines where your assets will go upon death. With a living trust, your assets will be held and managed by a third party or “trustee.” These assets can include financial accounts, real estate, cars, or any other valuable personal property.
After your death, the trustee will be able to swiftly transfer the trust assets to their named beneficiaries without the need for probate. Living trusts differ from wills because the management and distribution of your assets go into effect during your lifetime.
Most states allow you to set up “payable on death” accounts for life insurance policies, retirement accounts, and bank accounts. This allows the bank or insurance provider to release the funds directly to the designated beneficiary without requiring probate.
Some states even allow you to designate beneficiaries for cars and real estate property, allowing them to be transferable upon your death.
Holding property jointly allows the property to transfer directly to the surviving owner. During your lifetime, you can retitle a property deed to share ownership as joint tenants with a loved one to whom you'd like to pass the ownership to after your death.
Additionally, depending on where you live, community property will pass directly to a surviving spouse. Property automatically passes to a surviving spouse when it is owned as community property with right of survivorship in states such as Arizona, California, and Nevada.
Upon your death, any assets that are no longer in your possession are not part of the probate estate. Hence, if you transfer property during your life time, such as by giving away gifts, this can be an efficient way to avoid probate.
If you take this route, be aware that a federal gift tax can apply to gifts valuing over $15,000.
The complexity of the probate process can differ case by case. A smaller estate may not even require probate, while a larger estate can lead to complex court proceedings.
In either scenario, taking some of these estate planning steps can help minimize the time and money devoted to probate proceedings, which in turn lessens the burden of probate on friends and family.