Probate is the legal process that an estate must pass through under certain circumstances. Unless you have a small estate, the full probate process would be necessary if you use a will as your sole asset transfer vehicle.
The court makes sure that the will is valid, and final debts must be paid before the estate is distributed among the heirs. If someone wants to challenge the will, they could make a case during probate.
While it does serve some useful purposes, it is a hassle for the rightful inheritors because it is time consuming and it can be expensive.
There are some types of asset transfers that are not subject to probate, and people often plan their estates with probate avoidance in mind. We will look at some of the details here.
Probate-Free Transfers
When you open an account at a bank or a brokerage, you can choose to name a beneficiary. While you are alive, the person that you name would not have access to the funds.
After your passing, the beneficiary would obtain a death certificate and present it to the institution. As long as everything is in order, the assets would be released to the beneficiary, and the probate court would not be involved.
If you own residential property, you can add a co-owner to the title or deed. This would create the condition of joint tenancy, and it comes with right of survivorship.
After the death of one joint tenant, the surviving joint tenant would assume sole ownership of the property. This would be a probate-free transfer.
Before you think this sounds like a great idea, you have to understand the fact that the financial problems of the joint tenant would become your problems. For example, if they were the subject of a legal judgment, their half of the property could be attached by the court.
Life insurance proceeds would be transferred outside of probate, and the transfer of an individual retirement account to a beneficiary would not go through probate (unless the estate is named as the beneficiary).
In some cases, assets will be transferred outside of probate even if the decedent never thought about the concept. And of course, sometimes people use these methods quite intentionally.
Proactive Probate Avoidance
The most commonly implemented solution for probate avoidance is the utilization of a revocable living trust. A lot of people turn off as soon as they hear the term “trust” because they do not want to lose control of the assets while they are living.
This is totally understandable, but nothing changes with regard to your access to your property if you establish this type of trust. The trust would technically own it, but you would be the trustee and the beneficiary.
You would name a trustee to succeed you after you are gone, and your heirs would be the beneficiaries. After your passing, the trustee would follow the instructions that you recorded in the trust declaration, and the assets would be distributed in accordance with your wishes.
The probate court would be out of the loop, and this is a major benefit, but there are others. You could include a spendthrift provision that would protect the principal from the beneficiary’s creditors, and you would create a streamlined estate administration situation.
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