What is probate?
Probate is the legal process that occurs after someone dies. During probate, it must be proven in court that the person’s Will is valid, their property must be inventoried and appraised, taxes and debts must be paid (as well as the lawyers and court fees), and then the remaining property is distributed among the heirs and beneficiaries. Probate becomes a matter of public record at the time of the individual’s death.
This process of having the court make all the decisions is called “probate,” and it can be a maddeningly slow process for grieving relatives to endure. Worse, the results of following the state statutes may differ dramatically from the desires of the decedent and the family, adding insult to injury. Here are some tips to avoid probate.
With a will, the deceased’s personal property passes directly to the beneficiaries designated in the will, in the precise manner specified. Additionally, provisions in the will for the guardianship, support, and care of minor children can be executed immediately.
If a person dies without a will, they die “intestate.” Without a will, the courts have to decide what to do about the personal property and the care of the children. In the absence of a will, the court has no idea what the decedent’s wishes were; therefore, the courts strictly follow the state statutes regarding the property and the children.
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 lower 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.
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.
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 $12.92 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.
Using a Living Trust to avoid probate
Living Trusts bypass probate, since technically assets you put in a trust are owned by the trustee, not you, so on your death the trustee can transfer your property and assets directly to your beneficiaries.
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.
You can convert bank accounts, stocks, and certain registrations to be payable-on-death, and joint-property can also be transferred directly. A Living Trust also allows you to manage your assets without having to create a Power of Attorney or Conservatorship, as you would under a Will. You can also use trusts to give away gifts while you are alive (ex: College Education Trust).
Be aware that these assets are still taxable by federal estate tax purposes.
Avoiding probate with a Will
In some cases setting up a Living Trust may not be more hassle and expense than the probate process. Living Trusts require constant management and funding, and management of a trust can be more difficult or expensive than probate. In those cases, a Will may be the better option. Wills are simple to prepare, and it’s easy to update them or create new ones when necessary.
A Will 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..
Some states allow small estates to use abbreviated probate procedures or avoid probate entirely. Even if you have a larger estate, it’s possible to structure your finances so that significant assets will pass to others outside of the probate process. If fewer assets are included in the probate estate, the probate process may be faster and simpler.
Using just a Will, you may be able to avoid probate with careful estate planning using assets that avoid probate naturally, including:
- Gifts: One common strategy is to give gifts while you are living: you can give up to $13,000 per person to any number of people without worrying about the gift tax. These gifts are then not included in your estate.
- Contract controlled assets: These assets often never even pass through probate. Assets such as life insurance, IRA, and pension plan proceeds go directly to the named beneficiary and are not controlled by a Will and so are not subject to probate.
- Joint property: Joint tenancy is a planning strategy used to avoid probate: a house owned by two persons jointly with rights of survivorship will pass directly to the survivor.
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 Legal Pro 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.
Not sure? Ask a Legal Pro.
Whether you’re looking to get your own estate in order, or manage someone else’s, Rocket Lawyer can help you understand which option is best for you. You can talk to an attorney about which option is best for you.
Once you know which document is right for you, Rocket Lawyer makes it easy to create your Last Will and Testament or Living Trust online. You can also use our site to consult a Legal Pro to review your documents.
Please note: This page offers general legal information, not but not legal advice tailored for your specific legal situation. Rocket Lawyer Incorporated isn't a law firm or a substitute for one. For further information on this topic, you can Ask a Legal Pro.
