Save your family the time and stress of probate with your estate

Probate is the formal legal process through which the state carries out a deceased individual’s will. If they did not leave a will, or if their will is legally questionable, the state oversees the distribution of property according to state law. Each state has its own process, but there are a few common factors that make probate something many people choose to minimize or avoid.

For example, the probate process makes an estate a matter of public record, and it can often be expensive and time-consuming. In a worst-case scenario, it can also cause clashes between your heirs or lead to the probate judge interpreting your estate plan against your original intentions.

For these reasons or others, you may wish to keep as much of your estate as you can outside the probate process. A variety of techniques can help you to transfer assets to your heirs without passing through probate. 


Do use trusts

Some sorts of trusts allow you to pass assets to your heirs without the need for probate. One of the most popular solutions is a revocable living trust. The trust document specifies the beneficiary or beneficiaries who will receive the trust’s assets after your death, so you do not need to account for those assets in your will. Because the trust is revocable, you can change or dissolve it later if the need arises. Be aware, however, that assets in a revocable living trust still count as part of your gross estate for tax purposes.

Do understand the different types of property ownership

Several forms of joint property ownership exist, which allow you to co-own property with a spouse, an adult child, or another individual. Upon the first owner’s death, the property passes directly to the remaining owner or owners without the time and expense of probate. Potential options include joint tenancy with right of survivorship, tenancy by the entirety, and in certain states, community property. Investigate the state laws governing the types of property ownership available to you—especially for real estate.

Do learn about transfer-on-death options

Certain assets have a feature that lets you name a beneficiary directly when you register it. This is called a transfer-on-death (TOD) or payable-on-death (POD) feature, and is common with bank accounts and certificates of deposit. Increasingly, TOD options are becoming commonplace for stocks, bonds and brokerage accounts, too.

A few states even offer the option to name a beneficiary when registering a car or truck. This is different than co-ownership, since the beneficiary does not have rights to the asset during your life. Be sure to take advantage of any TOD options available to you. 

Do remember that some assets automatically bypass probate

Certain assets do not have to go through probate simply because of their nature. Retirement accounts, such as IRAs and 401(k)s, include a named beneficiary who can claim the account balance directly from the account custodian upon your death. If you are married, your spouse may have certain rights to the assets; if you are single or widowed, you can usually name whoever you prefer. Proceeds from a life insurance policy also pass to the beneficiary outside of probate.

Make sure the beneficiaries on these accounts follow any applicable rules and are up-to-date to reflect your wishes. And note that if you forget to name a beneficiary, the assets will end up payable to your estate and will then be subject to probate. It is essential that you actually name the beneficiaries when setting up these accounts. 

Do make lifetime gifts, if possible

If your situation allows, making gifts directly while you are still alive also allows you to give property to your heirs without the public and time-consuming probate process that can sometimes result from a complex will. You should bear in mind your own needs and the possible tax consequences for large lifetime gifts, but if done carefully, lifetime giving can simplify your estate plans.


Do not neglect planning for ancillary probate

If you own property in more than one state, it is important to remember that your estate could be subject to more than one probate process. Probate in a second (or third) state is known as “ancillary probate,” and it is often a headache for executors, heirs, and family members. In this situation, setting up a revocable living trust or securing joint ownership can be invaluable. Some deeds also allow for transfer-on-death (TOD) designations.

Do not name beneficiaries who are impossible to reach

Though this may seem like common sense, it is essential that you make sure any named beneficiaries for trusts or TOD assets are identified by their full, legal names—not their maiden names or nicknames. You should also be sure you keep the latest, most up-to-date contact information on file so that the account administrator or trustee has no trouble reaching the beneficiary. A beneficiary who is impossible to contact may be enough to throw the asset into probate.

Do not forget the tax impact of non-probate assets

Many assets that pass outside probate still count as part of your gross estate as far as state and federal estate taxes are concerned. If you want to minimize your potential estate tax burden, that is a separate concern from avoiding probate and will require other steps. You should talk to your financial planner or adviser about both goals to make sure they are working in harmony.

Do not contradict non-probate planning in your will

Your will does not govern how non-probate assets pass to your heirs, but if you try to specify otherwise, it can cause a legal tangle that may delay your heirs’ inheritance or cause legal battles. You should certainly have a will, but it is one part of your overall estate plan. Conversely, don’t specify beneficiaries for non-probate assets “as per my will.” This can cause confusion, and can also throw trust assets or other property back into the probate process. Instead, be sure to list all beneficiaries clearly by name.

Do not ignore administration expenses and taxes

If you arrange for most of your property to pass outside the probate process, the remaining estate may be short on cash with which to pay any remaining attorney fees, executor fees, or taxes. This could result in your heirs having to sell illiquid assets like real estate or art. Or, even worse, it could lead to heirs having to pay such expenses out-of-pocket. Be sure to leave some assets in the probate process designated to cover the cost of administering your estate so that your heirs won't need to handle such costs themselves.

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Taking the time to understand your options and to set up non-probate options such as revocable trusts, TOD accounts, or lifetime gifts can protect your privacy, simplify your estate administration, and lower estate costs. Everyone’s situation is different, but if you consider your options carefully, you can help your heirs avoid the worst headaches connected to the probate process.

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Anthony D. Criscuolo, CFP®Client Service Manager/Portfolio Manager

Anthony D. Criscuolo, CFP®, has extensive experience in Palisades Hudson’s estate planning, tax, investment management and accounting practices. Anthony provides a wide range of services to his clients, including asset allocation and investment ...

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