How to avoid probate (and why you’d want to)
There are many reasons you may want to avoid probate. It's a long, costly, and often stressful process. Fortunately, there's several ways to avoid it entirely.
Why would you want to avoid probate?
Probate is designed to prove that the deceased's will is valid, inventory and appraise property, and pay debts and taxes. However, this process requires a great deal of paperwork, time, and expense.
What's more, lawyers and court fees associated with probate are typically paid from the estate Itself, cutting into the sum that family and friends might otherwise inherit.
In simple uncontested cases, there's little need for probate. This formality ties up the property and consumes a significant portion of the estate. Expenses associated with probate include:
- Executor fees: If the executor inherits some of the estate this fee is often waived.
- Lawyers' fees: Lawyers may charge by the hour, provide services for a flat fee, or take a percentage of the estate value. Fees vary by state, but often begin as high as 4 percent of the first $100,000.
- Court costs: Court fees can range from $300 to $3,000 not including surcharges, depending on your state.
- Appraiser's fees: These fees typically range from $300 to $500, but depend on the extent of the property involved in the appraisal.
Another hazard of probate is that it makes all documents a part of public record. This means that others can see who the deceased left particular items of value to, even though you may have preferred the inheritance to remain a private matter.
How can you avoid going through probate?
You can prevent your loved ones from going through the hassle and expense of probate by taking proactive measures to carefully handle your estate.
One of the simplest methods is joint property ownership. Property owned jointly passes automatically to the other living owner without passing through probate.
In addition to joint property ownership, other ways of avoiding probate include:
Naming beneficiaries: Keep assets from passing through probate by naming beneficiaries on bank accounts, investments, pension plans, stocks, bonds, and more.
Making a living trust: Distribute your assets and property to a trust while you're still living.
Gifting property: Property you've gifted to other people is owned by them, and doesn't pass through probate. However, the gift is only "final" if the gifted items are no longer in your possession.
Each of these will be explained in more detail in the sections below.
What's the benefit of naming beneficiaries?
Death benefits don't have to go through probate if there are designated beneficiaries.
If you are married in a community property state, your spouse has a right to half of all money during the marriage. Properly designate your spouse as the beneficiary for at least half of this money to ensure that your benefits do not need to go through probate.
Probate will only apply if there's no named beneficiary, or the beneficiary is deceased. If there is a living beneficiary, you're safe from probate.
How can a living trust help?
When you leave your assets to a beneficiary through a living trust, you become both the grantor and trustee of the property. The assets are then held in trust for the designated beneficiary until the time of your death.
You will appoint a successor trustee who takes over the property at the time of your death. This keeps your property well away from any probate proceedings.
How do gifts let you avoid probate?
Giving your assets to another person as a gift while you're still alive is a popular way to try to avoid probate. The potential drawback of this approach is that your gift may be designated as incomplete, causing it to pass through probate.
A gift becomes complete only when the person making the gift is no longer in possession of the property or assets. If the property is still in possession of the gift giver, courts will determine if that person was still able to take back or modify the gift, thus transfer is incomplete.
If you want to give away some of your assets as a gift, make sure the recipient cashes checks, transfers titles, and takes full possession of the property promptly to avoid probate.
What's the main thing to remember?
Though some people assume probate is a necessary part of the process after a loved one has passed, this doesn't have to be the case. With careful estate planning, you can avoid probate for many assets.