What are the benefits of avoiding probate?
Each state sets a different threshold that determines whether or not a deceased person’s estate is required to go through the probate process. This is typically a dollar amount that varies from state to state; in some states it is as low as $50,000 and in others it is as high as $200,000. Real property can also trigger the probate requirement even if the estate falls below the dollar threshold. If the probate requirement is triggered, the probate judge has the final say over how an estate is distributed, and the estate distribution happens in court. The probate process can take months or even years if there are challenges or complications. By avoiding probate, an estate can be distributed without much delay.
What happens to assets and money during probate?
While the probate process is ongoing, assets and money in the estate cannot be distributed fully to the beneficiaries. First, the assets are tallied to determine their present value. The probate judge may also appoint someone from the court to oversee the probate process. This person is often paid from the estate’s assets, which can lowers its value if the process drags on for too long. These concerns may be present in the probate process whether an estate is large or small.
Are there tax benefits to avoiding probate?
Most estates are not subject to federal tax because the threshold to be taxed is very high, currently $12 million or more. Many states have their own estate tax and the thresholds can be much lower. In general, though, avoiding probate does not mean avoiding paying estate tax in your state if the estate exceeds the threshold. Tax benefits may be possible if, as part of sidestepping the probate process, a Living Trust is set up. This allows some assets to pass to the beneficiaries automatically via the trust, thereby avoiding the payment of capital gains tax if the beneficiaries choose to sell assets that have increased in value.
How can I set up my estate plan to avoid probate?
There are several tools you may use to avoid probate. One of these is called a Living Trust and another is called a pour-over trust.
A Will is an important part of estate planning. It acts as a set of instructions for your executor, letting them know what you want to happen with all of your assets, whether those assets include a house, a vehicle, bank or brokerage accounts, or personal items. But if all you have is a Will, your executor is still required to “probate” the Will, which takes time and money from your estate. If you want to keep your assets out of probate, it is recommended to create a Living Trust, then add a pour-over trust to your Will.
Once you’ve created a Living Trust, you can put in all the assets you own at the time. These assets are able to avoid probate because they are in a Living Trust. Unfortunately, this doesn’t mean you are all set because changes in your life may result in changes to your estate. You may sell some assets and acquire others and forget to put your new assets into the trust along the way. Only assets in the trust can avoid probate. Any other assets you may have acquired but forgotten to put into the Trust are subject to probate. However, you can stay ahead of this issue by including a pour-over trust in your Will. What this means is that, at the time of your death, any assets you own are “poured” into the Trust, even if they were not previously part of the trust.
How can I simplify the probate process for my family?
The best way to simplify the probate process for your family is to plan carefully so your heirs can avoid as much of it as possible. A great way to get started is to contact a Rocket Lawyer network attorney to discuss your overall estate plan. After you know which tools to use, you can get all the appropriate documents in place to ensure your family has a smooth way forward when you are gone.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.