A revocable living trust serves a range of purposes in the estate planning process…
Many of you may have heard that you should try to avoid probate but have misconceptions about what that actually means. Probate can be very time consuming, costly, and can lead to some animosity between surviving family members as a result of the court proceedings. For these reasons, probate avoidance is very desirable. There are several ways to accomplish this, however, keep in mind that probate avoidance in and of itself is not estate planning, it is simply avoiding probate.
What is Probate?
Probate is a legal process that occurs after someone dies. It exists to make sure that property is distributed to the correct people, and that any taxes or debt are paid. If there is a written will, the court will review it to make sure that it was signed properly, is valid, and then make sure the directions of the will are carried out. In the situation where there is no will or it is found to be invalid, the probate will proceed under a state’s statutes.
Disadvantages of Probate
Time – Probate proceedings are a legal process and can take a lot of time. They begin with the preparation of probate forms and accompanying documents. Then the actual filing with the probate court occurs and notices are sent to potential heirs, beneficiaries, and creditors. From here things can slow down even more if there are many different beneficiaries, especially if they disagree on what will happen with the estate; if the will is going to be contested; and if debt and taxes need to be paid.
Expense – Between probate court fees, attorneys’ fees and any other final estate accounting that has to be completed, these proceedings can be very expensive.
Public – Since probate is a court proceeding it is a matter of public record. This means that estate assets, beneficiaries, the will, and any other documents go into a publicly accessible file. Many people are not comfortable with this level of public access after their death.
Ways to Avoid Probate
Joint Ownership – Property that is jointly owned can avoid probate for the very simple reason that upon death, the deceased joint owner no longer owns the property and it passes to the living joint owner. Ways to do this are adding a joint owner to bank accounts, investment accounts, or real estate deeds. The drawbacks of this however are by adding a joint owner to an account or deed there may cause a tax problem, increase your liability with creditors, and leaving your property to a joint owner does not guarantee that they will carry out your final wishes.
Beneficiary – A POD (Payable on Death) or TOD (Transfer on Death) beneficiary is someone that you name as a recipient of funds or real estate upon your death. Beneficiaries have no ownership or control over the funds or real estate until your death. You can also add, modify, and remove beneficiaries at your discretion. The disadvantages of this process can be complicated, especially if a beneficiary predeceases you. And like Joint Ownership, leaving your property to a beneficiary does not guarantee that they will carry out your final wishes.
There are many different ways to avoid probate and they all come with their pros and cons. It is always best to consult with an estate lawyer to help set up the appropriate mechanisms in order to avoid probate. Without baking these into your overall plan, all you are really doing, in the end, is avoiding probate. This can ultimately lead to unwanted outcomes with your estate and the lack of proper planning could leave your heirs dealing with the probate process after all.
Contact the Estate Planning Attorneys at the Law Firm of Christopher W. Dumm