Plan ahead to avoid probate’s costs, delays
Probate is a process by which property is distributed to a decedent’s beneficiaries. In most situations, it is time-consuming, offers no benefits, and can result in expensive, avoidable legal expenses.
In probate, the will is filed with a local court; the decedent’s property is identified and appraised; debts are paid; challenges to the will’s validity are adjudicated; and the remaining assets are distributed as the will specifies.
Normally, probate takes approximately up to a year, often longer. The executor appointed in the will is responsible for hiring a probate attorney, when required.
Even with a modest estate, attorney fees can be substantial. Probate costs vary by state, but you can expect them to be approximately 5 percent of the value of property in the estate.
Steering clear of probate
There are ways to avoid probate, and it’s in the interest of your heirs to investigate these options. An excellent source is 8 Ways to Avoid Probate (Nolo) by Mary Randolph, J.D. Here are a few strategies.
• A living trust. A living trust is a revocable trust, meaning you can change it at any time while still living. You specify the beneficiary of any assets in the trust agreement, as you would in a will. After your death, the assets go directly to your inheritors without probate and without a waiting period. You can name alternate beneficiaries.
Court challenges to living trusts are rare. It is generally more difficult to challenge a living trust than a will in court.
A living trust does not eliminate the need for a will. Almost no one transfers everything to a trust. Any assets not transferred to your trust won’t pass under the terms of the trust agreement. You can use a “pour-over” will directing any remaining property be poured over into your living trust.
A disadvantage of the living trust is that is more work, and more expensive, to create and maintain than other probate-avoidance alternatives. Although it is the most flexible way to avoid probate, not everyone needs one. Ask your attorney.
• Naming a beneficiary for your retirement accounts. When you establish a retirement plan, you will be asked to name beneficiaries (and optional alternative ones). You may change beneficiaries at any time up to your death. A will does not override beneficiary elections you make on these forms! Any beneficiary changes must be made on the forms associated with your retirement account. If you have a named beneficiary, the accounts will not go through probate.
• Payable-on-death accounts. Bank account assets, including certificates of deposit, can easily be kept out of probate by simply designating them as payable-on-death and telling your bank the name of your intended beneficiary. Your beneficiary will have immediate access to the funds after your death.
The only disadvantage is that you can’t name an alternate beneficiary. So if your original beneficiary dies, advise your bank to change the beneficiary.
• Transfer-on-death registration for stocks and bonds. Unless you live in Louisiana or Texas, you can name someone to inherit your stocks, bonds or brokerage accounts without probate.
• Property held in joint ownership. The following ways to own property in joint ownership avoid probate: joint tenancy with right of survivorship; tenancy by the entirety; and community property with right of survivorship (applicable only in five states). Ask your attorney for advice.
© 2015 Elliot Raphaelson. Distributed By Tribune Content Agency, LLC.